The distinction between the impeachment efforts and international issues underscores what most longstanding practitioners in political risk (including traders, portfolio managers, and international entrepreneurs) have known for some time: There is a difference between the relatively benign influence of political noise and the larger political events that have a discernible effect on the behavior of various asset classes.
The early weeks of 2019 have not disappointed anyone with expectations that the already high levels of political and country risk around the globe would continue. Needless to say, our models are working ‘over-time,’ and the multitude of insights and forecasts they are providing to our clients are unequaled in our firm’s history.
More than 120 politicians have been murdered since serious campaigning got underway late last year, underscoring the notion that Mexico is truly engaged in a “drug war,” one defined as much by battles among competing drug cartels and between corrupt and non-corrupt politicians as between state authorities and criminal gangs.
Italian assets continued to take a hit as we went to press in May, with the government’s two-year note – the debt instrument most sensitive to changes in political risk – being slammed the hardest, rising to its highest level in four years, breaking through 2.7% for the first time since 2013. The longer-dated yield on the Italian 10-year note reached 3.38%, up about 70 basis points from the previous close.
As we were wrapping up our March ratings and forecasts, developments affecting North Korea were gaining steam. Just weeks before a scheduled April 27th meeting between Kim Jong Un and South Korea President Moon Jae-in – to be followed presumably in May by a get-together with President Trump – the North Korean leader railed into Beijing to see China’s Xi Jinping. The meeting between the two Asian leaders is instructive insofar as it presents an entrée into the interests of each of the parties.