An increasingly “nervous” international investment environment this year will lead to political risk becoming an even more important factor to consider in 2015. This is because analysts and investors are no longer as calm as they were last year and bad news is more likely to lead to a negative reaction than it was last year.
These are some of the main reasons for the current nervous investment environment:
China’s growth has slowed to around 0.9%, which is at a 24-year low
The 17 percentage point outperformance of US stocks over their European counterparts in 2014 – the largest for 40 years
The 25% gain by the Swiss Franc against the Euro last week after the currency peg to the Euro was removed
The prospect of anti-bailout party Syriza triumphing in Greek elections scheduled for later this month has raised fresh concerns over the implications of a possible Greek exit from the eurozone
The UK general election scheduled to take place in May which is seen as the foremost political risk for UK investors
ISIS and Boko Haram and other related and unrelated terror activities around the globe
Of course, there are also reasons why equity markets may benefit:
European equities start to attract investment, leading to price appreciation
The lower oil price reduces inflation around the world without the UK and Europe sliding into a deflationary spiral
Greece remains in the Euro group of countries
Either the Tory’s win the UK general election in May or the Labour Party win but do not carry our Ed Milliband’s threats to cut up large banks, put the breaks on insurance companies and pension providers, etc
The violence sown by Isis and Boko Haram slows
We will also have to see if the new quantitative easing package announced by the ECB today will lift especially European equities – the timing couldn’t have been better for this announcement
