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Can well-governed companies navigate geopolitical turmoil?

Continuously rallying markets seem worryingly disconnected from the current geopolitical climate. In this period of uncertainty making correct macro calls is challenging, but complacency is not the solution. Louise Dudley, Global Equities Portfolio Manager at Hermes Investment Management, suggests focussing on company fundamentals and in particular governance to drive outperformance over the long term.

The VIX, the equity volatility index, has hit new record lows recently, while major equity indices have cruised around record highs. These apparently calm market seas have contrasted with a storm of political uncertainty, encompassing EU-threatening elections and Brexit uncertainty, friction between Russia and the West, and the unpredictable actions of Trump. Within this new geopolitical era, the sheer number of geopolitical shocks over the past decade seems to have led to investor complacency.

In this environment of great uncertainty and lack of market leadership, investors acting as macro forecasters must not only be correct about the anticipated event, but also about how the market w