The weather here in the Lowcountry is clearly displaying signs of spring, with temperatures now consistently in the low to upper 20s. This is always my favorite time of the year, since it ushers in the summer months and brings life to a variety of plant life. Renewal is a constant theme in life.
In any case, I'll be speaking soon with a group of international distillers, including representatives from the likes of Kendall Jackson and Pernod Ricard. I'll be providing a slightly different and data driven slant on some issues of the day, including the growth prospects in Europe, US tensions with China, sovereign debt issues, and some currencies to watch in relation to the USD. I really enjoy speaking with credit professionals since they are intimately involved with the day-to-day issues of international business and have an acute understanding of selling into some very different markets.
Later in March, I'll be at Harvard University, speaking to some students of Dr Peter Marber - my co-author and co-editor of our book, Quid Periculum: Managing and Measuring Political Risk in the Age of Uncertainty (contact PRS at custserv@prsgroup.com for a copy). Peter and I share a great deal in common when it comes to intellectual influences and I always enjoy speaking with his emerging markets class.
Finally, I've decided to put on hold my original plans to fly fish in Ireland for a trip to Rome, the Amalfi Coast, and Tuscany in April. Someone close to me has to see some of the world's most historic places and Italy - and most things Italian, from cars, to music, to instruments - have had a particular hold on me since I first visited the country some 20 years ago. As you know, the following month I will in a cycle race in Montalcino, so that event I wait for eagerly.
PRS recently expanded its trading activities to include more international fixed income securities, as yields in the US and elsewhere have become increasingly attractive and now compare competitively in many ways with equities. This is a welcome event as the past 15 years have been extraordinary in terms of asset values on the back of cheap money.
My flagship data series, the International Country Risk Guide (ICRG), is always at the forefront of the geopolitical data used by academics and practitioners alike.
As such, we have found a couple of new studies using our data in part to consider the relationship between debt workouts and economic growth, courtesy of the IMF's Working Paper series and a similar line of work by the Bank of Italy - both long-time clients of mine. Thanks to both.
What are some of the implications of sovereign defaults and debt workouts to economic growth and fiscal crises?
1/ Defaults are correlated with contraction of short-term output growth. But those countries with a higher proportion of official debt restructured have experienced higher growth in the long run.
2/ A larger share of debt held by the nonofficial sector is associated with a higher probability of a debtor country running into a fiscal crisis, and that the magnitude of the negative impact is larger at higher debt levels. Moreover, countries with a larger share of debt held by nonresidents are more likely to run into a fiscal crisis, and the magnitude of the estimated positive impact is larger at higher debt levels.
Our data has long been a favorite of the global investor class - and has been so since the 1980s. Our clients and friends will know that our ICRG data has been consistently and independently back tested since the early 1990s, showing numerous correlations with asset classes and a range of political and economic phenomena.
As such, JP Morgan has recently adopted our data as part of the company's efforts at refining its approach to ESG investing (to put it simply), and former members of the 'world's premier asset management' firm have sought it wise to use our entire historical series to find those areas where the forward looking nature of our risk forecasts uncovers statistical anomalies in an effort to capture that all important alpha.
Meanwhile, I will be speaking to members of the Finance, credit and international business association (FCIB) about some of the risks facing the global economy at the moment. I will also deliver a lecture to students at the Graziadio Business School at Pepperdine University. One of the best parts of working in this field is speaking to those with a business and academic interest in geopolitical risk and, in so doing, offering some insights based on almost three decades in the field and hopefully encouraging a new generation of political risk analysts to continue their professional goals.
On a personal note, in April I will be in Ireland, fulfilling one of my so-called bucket list items: fly fishing on the emerald isle. The next month will see me joining a well-known French jazz guitarist (and harmony teacher) in New York, exploring the depths of one of my guitar heroes: Django Reinhardt. The month will close with a 128km cycling race in Montalcino, Italy, on a vintage Bianchi Specialissima. The white gravel roads, Chianti, good friends, and hopefully warm weather beckon me.
Our International Country Risk Guide continues to be the most widely used geopolitical risk data series in the field. Not driven by attention grabbing news headlines, the 40+ series continues to yield timely empirical results.
For example, with new fears of a recession affecting a third of the global economy, and recent suggestions of a ‘shallow but long’ recession in the US, all eyes are fixed on the timing of the Fed’s move to ease in 2023.The Fed remains steadfast in its commitment to reduce employment/demand-driven inflation in the US but the markets are pricing in cuts this year.
Assuming the latter – when it happens – is significant for investors and firms in emerging markets.
So, what’s the connection between US monetary policy shocks, net capital flows, and emerging market equity and bond returns?
This interesting piece - which uses our ICRG data as one of the various country specific ‘pull’ factors - provides some good insights intothese relationships, especially in terms of sequencing and flow volumes.
Additionally, a recent IMF Working Paper revisited the relationship equity returns and inflation, specifically under different monetary policy regimes.
Using our ICRG financial risk metrics as part of the panel data set covering 70+ countries over from 1980 to 2015, cf this link for the general conclusions.
The study’s findings provide some insight into possible sequencing of developed and emerging market exposures.
Simply the best data around.
The late fall and early winter months have been particularly productive and rewarding. I spent some time in Paris - one of my favorite cities - meeting with clients, investment partners, and several rather esteemed professors from the SKEMA business school. The dinner was only bested by the conversation which trailed on into the late evening. Thanks to Roldolphe and Philippe and the rest for being such accommodating hosts.
The trip was made complete with an equestrian ride for my daughter - who accompanied me on the trip - as she spent several hours trotting around the grounds of Versailles with her guide, Jean Baptiste. The lunch on the grass of the palace was especially enjoyable.
After several years of being quite restricted in our mobility, the beginning of December witnessed my first major conference since leaving the G20 in Riyadh in February of 2020. The International Conference on corruption in DC was incredibly informative, and just seeing friends and clients in person after so much time was difficult to described. As much as I like solitude I think the human condition is social. We thrive in social settings, both intellectually and emotionally. Despite the waves of infections currently sweeping through China, I can only pray that this dreaded virus and all its variants will fade into the distant memory.
December was capped with some time off in Naples, Florida - a retreat of sorts that I've had since the mid 2000s. It's always nice to feel some warmer temperatures, focus a little on year end activities, cycle, visit the gym in the morning, and meet up with friends.
Christopher was pleased to host a 40mn podcast with Professor Brandon Parsons of Pepperdine University, just before PRS' Charleston office was called on by Hurricane Ian. Professor Parsons presented some of his research on the connection between corporate taxation and income/wealth disparities, as well as the effect of corruption on economic growth. The full interview will be available soon on PRS' YouTube page and on Linkedin and Twitter.
September closed a busy note as the data for the International Country Risk Guide (ICRG) was published, and PRS was about to send its annual corruption data to Transparency International, the Berlin-based watchdog. Also, some very interesting empirical studies using the ICRG data were brought to our attention, with one effort documenting the various ways 'channels of political risk' help create inflationary pressures. Have a look at our Linkedin in page for more information. And finally, Christopher is looking forward to a number of meetings this week with one of China's sovereign wealth fund, JP Morgan's Indices office in London, and professors from the University of Pennsylvania.
An annual event prior to the pandemic, in September Christopher will welcome back to Charleston representatives of South Korea's anti corruption agency. Always an engaging and thoughtful discussion, Christopher is looking forward to discussing further the group's initiatives over the past year or so in the welcoming environment of Charleston, South Carolina.
Christopher and representatives of the central bank of the Philippines are in the process of curating a list of meetings and related events ahead of a planned visit to the country in November. The visit comes in the wake of a very pleasant gathering in Washington earlier this year to discuss several issues ahead of the general election.
Christopher has accepted two invitations to Riyadh this year to participate in ministerial meetings involving the Anti-Corruption Authorities of the Gulf Cooperation Council (GCC) and the Organization of Islamic Cooperation (OIC). Other participants include representatives from the World Bank, the IMF, and the OECD.
Christopher met with Marat Akhmetzhanov, Chairman of Kazakhstan’s Anti-Corruption Agency, and his staff to discuss several of the ongoing initiatives in light of the events of January in the country. Informative to say the least, the country sees the importance of SME development as a means of addressing socio-economic disparities.
Do natural resources jeopardize a country’s fiscal sustainability even before ‘the first drop of oil is pumped?’ Using our ICRG data on corruption, and several other metrics as a proxy for overall political stability, this interesting piece from the IMF Working Paper series finds that giant discoveries, mostly of oil and gas, lead to permanently higher government debt and, eventually, debt distress episodes, especially in countries with weaker political institutions and governance.
Using elements of the ICRG risk data (inter alia), a recent study published in the Bank of Italy’s Occasional Paper series presents some noteworthy findings on the impact of the IMF’s resources on sovereign spreads.
Given the spread of the omicron virus, an interesting study was published in Globalization and Health, in which our ICRG risk metrics were instructive in explaining why globalized countries, with high levels of government effectiveness, were relatively more cautious in implementing travel restrictions than those with lower levels of public efficacy.
PRS releases a new geopolitical data series as part of the firm’s popular Researchers’ Datasets (RDS). This new series offers the annual averages (beginning in 2001) of the 15-political risk subcomponents of the 140 countries from the ICRG. This most granular approach to overall geopolitical risk assessment delivers a thoroughly vetted, quant-based look at the building blocks of government stability, the bases for a country’s socioeconomic health; the key risks facing business and investment, from contract repudiation to transfer and payment delays; to the increasingly important role that local and international politics plays in relation to forms of internal dissent (strike activity, terrorism, civil war) and to global relations (cross border conflict, sanctions).
