Political Research

Overview

Political and social developments are for the most part inseparable from economic drivers of risk and opportunity in the global economy and financial markets. But there are times when purely political factors play a decisive role.

In recent years, economic and political factors have become much more closely intertwined. The forces at work are larger than any single country or company, so even carrying out thorough economic research and due diligence will not be enough to give you the full picture. To avoid potentially costly decisions, it pays to seek out intelligence that will help you anticipate major events, in order to hedge or benefit from emerging global and regional risks.

Our Political Research Methodology

Our Political Analysts are In-Country

Our political analysts are based either in London or in the emerging countries that they cover. Being based in-country allows our team to ascertain how policy is set to change on a day-to-day basis. Our analysts do not only stick to the metropolitan and financial centres but also travel to outlying regions to gain a better overall perspective on state politics, regional economies, industrial practices and how policy is affecting economic outcomes.

We preserve our outsider's political judgement

Our emerging markets analysts may be embedded within the culture of the country they are monitoring, but will also have an outsider’s judgement – helping them to challenge perceptions and see beyond the obvious. They will put themselves in the shoes of the policy-makers, taking into account the effects of vested interests, societal pressures and the practicality of how and when policy is implemented.

Our political views are more nuanced

This allows us to formulate a more nuanced picture of how any given administration is likely to act over time, how its actions may have an impact on other economies and how it will react to both internal and external shocks. In addition, every high-conviction view is tested by our panel of senior analysts before being put into circulation, ensuring that each recommendation is backed up by rigorous discussion.

We appreciate evolving politics

By gaining this deeper level of understanding, we are able to appreciate the cumulative effects of policy over time and better predict the timing of forthcoming inflection points.

Services

Global Political Drivers

Update on political themes and risks large enough to be relevant for global asset allocators. Current themes: geopolitical tension rises as oil prices fall, Italy as risk to euro stability, and risk of Great Power conflict arising from North Korea and Syrian situations.  (Fortnightly on Thursdays)

Brazil Notes

In depth on-the-ground analysis of the political forces that will affect growth and investor sentiment. Current themes: Temer corruption allegations, Lava Jato investigation, financial reform agenda and fiscal problems, Presidential candidates for 2018.  (Weekly on Thursday)

China Notes

Deep dive notes on the political imperatives that drive economic growth and limit the pace of reform. Focus on how domestic and international political drivers impact economic planning and investment, fiscal and monetary policy, debt build-up and currency management etc. Also ad hoc responses to policy shifts. (2 to 4 notes per month)

Russia Notes

Market relevant analysis of domestic and geopolitical nuances and their impact on the economy and asset prices. Current themes: US and EU sanctions, oil prices and OPEC production deal, Syria risk and new elections in 2018.  (2 notes per month)

India Notes

On-the-ground coverage of political and policy developments that drive growth and investor sentiment. Current themes: Modi’s reform agenda, delivery vs. rhetoric, demonetization effects, RBI bed debt clean up and Goods and Services Tax roll-out.  (2 to 4 notes per month)  

EMEA Notes

Deep dive coverage of political risk and policy changes in Turkey, Egypt, Saudi Arabia, and GCC as a bloc. Focus on how politics affects fiscal policy and debt fundamentals.(2 notes per month)

LatAm Notes

Regional coverage with emphasis on Mexico. Economists and strategists travelling to each region, supported by local sources.  (1 note per month)

Politics Research

Politics
08 Jun 2018

Brazil: Bolsonaro surfs the anti-establishment tidal wave

  • In a new investor survey by XP Investimentos, nearly half of those polled now see Bolsonaro winning the ballot, casting doubt on Brazil’s economic future.
  • The recent use of WhatsApp as a powerful tool to mobilize truckers points to its huge potential to influence voter behaviour; it may also mitigate Bolsonaro’s lack of TV/radio ad time.
  • Market-friendly, former São Paulo Governor Alckmin not only trails in fourth place in a new presidential poll but is tied with an alternate candidate from Lula’s Workers’ Party, underscoring his ongoing woes.
  • Alckmin is also tied with his former protégé-turned-rival, former São Paulo Mayor João Doria, who is now unlikely to replace him on the ballot.
  • The truckers’ strike – the latest manifestation of the widespread popular outrage that has been evident since 2013 – highlights the deepening crisis of governability in Brasilia today.
  • That crisis is unlikely to be fully resolved by the October election, adding to the fiscal headaches for the next President.
READ ME
Politics
07 Jun 2018

Global Political Driver: Trump trade wars friendly fire

  • Trade disputes between transatlantic friends may seem less scary than with rising rival China
  • Such appearances are deceptive: historic geopolitical alignment paradoxically reinforces the attractions of Europe as a Trump trade war target
  • Those attractions range from domestic US politics to the ‘German cars’ question, with the geopolitical kicker being to prolong the row
  • This protracted prospect in turn aggravates the negative economic and financial market effects of inhibited capex and dollar strength
READ ME
Politics
31 May 2018

India: Rural revival at a fiscal cost

One of the first steps that the Bharatiya Janata Party took after assuming office in the southern state of Karnataka earlier in May was to waive farm loans up to Rs100,000 (US$1,500) each. The state government that introduced this measure lasted only two days, but its successor is under pressure to continue with the estimated Rs530 billion write-off. All parties are wooing the rural voter in the run-up to India’s 2019 general elections. Below we examine how India’s troubled rural economy will shape the economics and politics of the country in the next 12 months.

READ ME
Politics
03 May 2018

Saudi Arabia: The Kingdom to come

Over the last 12 months we have closely followed Muhammad bin Salman’s relaunch of his Kingdom. In this note we join up the findings of the past year of research to answer the question: what will the new Saudi Arabia look like?

READ ME

Track Record

Politics
10 Mar 2017

2017: Macron to win French Presidency, Le Pen’s chances overstated

Consensus said:

Markets pricing in chances of Le Pen victory, euro area spreads widening and talk about the future of the euro

We said:

The prospect of a victory for Marine Le Pen has unsettled markets. A case can certainly be made for how she could win. We believe that, for all her impact in moving French politics to the right, this is unwarranted. Despite his lack of backing by an established political party, his age (39) and his thin governmental experience, the centrist candidate, former banker Emmanuel Macron, has a much better chance than Le Pen of entering the Élysée Palace in May. The left has divided; and as Macron acquires ever more high-profile endorsements. At a recent press conference confirming his intention not to run, the centre-right primary candidate and former PM Alain Juppé seemed to be opening the door to eventually giving Macron his blessing. (Europe Watch 10 March 2017)

Outcome:

Macron beats Le Pen by 66% to 34% in the second round to become President. His En Marche! party subsequently wins a huge majority in the French parliament. 

Politics
03 Mar 2017

2017: Xi’s power consolidation allows room for lower growth target than previously promised

We said:

Xi Jinping promised in November 2015, that the economy would grow at 6.5% through to 2020. This was necessary, he said, to fulfill a promise by his predecessor, Hu Jintao, to double the 2010 GDP and per capita income by the end of the decade. However, over the past year, there have been several signs that Xi might be willing to back away from this pledge. After recent conversations in Beijing, we believe the target will be relaxed. We believe policymakers will accept growth below 6.5% from next year. The change responds to a wide-scale recognition that the current rapid pace of debt accumulation is unsustainable and increasingly risky. This bold political move will be enabled by Xi Jinping’s consolidation of power at the 19th Party Congress at the end of 2017. (China 03 March 2017)

Outcome:

Li Keqiang announced a lower growth target of “around 6.5%”, the lowest in 25 years, on 4th March 2017. 

Politics
26 Apr 2016

2016: Nabiullina is a Russian Volcker – equities and bonds will benefit

We said:

Success in squeezing persistently high inflation out of the system would be an historic achievement for the Central Bank under the leadership of Elvira Nabiullina and would have positive implications for Russian financial asset prices. Nabiullina’s improving chances of success are founded on her most important achievement to date, which is to have secured President Putin’s support for what she calls “moderately tight” monetary policy. The CBR does not enjoy statutory independence in its pursuit of an inflation target. It therefore depends on political support (as, arguably, is the case for its global peers, which are formally independent). President Putin has consistently provided such support since the previous crisis of 2008-09. In our view, his underlying motive came out of the lesson brought home by that crisis – namely, that monetary policy matters for sovereignty and self-reliance (paramount goals for Putin). In the run-up to 2008, Russia became prey to the well-known “impossible trilemma”, whereby a country with a convertible currency and pegged exchange rate must submit to having its domestic interest rate set by the outside world. Quite apart from the intrinsic desirability of regaining monetary sovereignty in Putin’s world view, an inflation-targeting framework makes it easier to weather periodic crises. That political support will continue for two reasons: first, the worst is over for real household income, and monetary policy is now helping rather than hindering this turnaround; second, Nabiullina is avoiding shock therapy, thanks in part to effective coordination with fiscal policy. (Russia 26 April 2016)

 

Outcome:

10y bond yields fall from 9.25 on 26th April to bottom at 7.48 in May 2017. RTS index rises from 951 on 29th April to peak at 1196 in January 2017.

Politics
11 Apr 2016

2016: No RMB devaluation, Beijing will use a ‘managed float’

Consensus said:

Large speculative positions for a repeat of the August 2015 RMB step devaluation. 

We said:

Although speculators were wrong to anticipate a sudden devaluation, they were not wrong in noticing that the RMB is overvalued. Despite slowing dollar demand from corporates and tight capital controls, net capital flows are still negative. The government has no desire to protect an overvalued currency because such an approach is expensive and hampers its ability to implement monetary policy. But at the same time it is keen to preserve stability. For this reason, we believe the authorities will continue to use a “managed float” approach, gradually guiding the currency down towards the market level but allowing occasional volatility to inflict pain on speculators. (China 11 April 2016)

Outcome:

USD/CNY weakened from 6.46 on date of publication to 6.96 on 3rd January 2017.

Politics
07 Oct 2015

2015: Xi Jinping takes control of economic policy as ‘core leader’

We said:

Xi’s concept of reform differs from the markets. We believe that Xi recognizes the need for economic modernization now that the 1980s model of cheap labour, cheap capital and strong export markets no longer applies. But he wants to regulate the process in keeping with the stress on control shown by the Communist Party since its foundation 90 years ago. Above all, he does not want to allow economic liberalization to spill over into China’s political structure and weaken the Party’s grip. This means that reform will be applied very cautiously and that political and social factors will play a big role in policy implementation. (China 07 October 2015)

Outcome:

Investors disappointed by reform progress. Shanghai Composite Index move sideways for 2 years. 

Politics
30 Jan 2015

2015: Levy honeymoon will soon be over for Brazilian assets, recession coming

Consensus said:

Markets up on confidence in new Finance Minister Joaquim Levy. 

We said:

We think his honeymoon with the markets will end soon for the following reasons:

  • President Rousseff has become a lame duck even before her second term has really started.
  • Levy has successfully harvested the low-hanging fruit of fiscal reform – namely, tax hikes that do not require Congressional action; but these actions fall short of what is required to reach his target of 1.2 per cent of GDP 2015 primary surplus.
  • The full impact of the fiscal “bombs” and other creative accounting measures from Dilma’s first term are still not quantified.
  • Extraordinary fiscal assistance will be required this year to prevent a precipitous collapse of infrastructure spending on existing projects and the Rio 2016 Olympics.
  • Although many analysts have downgraded their forecasts and are now calling for a small decline in GDP growth this year, we think the consensus is still too optimistic. We revise down our earlier -1 to 0 per cent GDP forecast to -1 to -2 per cent for 2015. (Brazil 30 January 2015)

Outcome:

BOVESPO rose from 46,908 to 57,479 on 30th April before falling back to 43,200 on 21st Dec 2015 when Levy left office. Equities finally bottomed out at 37,497 by 28th Jan 2016. Worst recession for 25 years in 2016-2017.

Our Team

POLITICS

Jonathan Fenby

Show Profile
POLITICS

Christopher Granville

Show Profile
POLITICS

Elizabeth Johnson

Show Profile
POLITICS

Marcus Chenevix

Show Profile
POLITICS

Amitabh Dubey

Show Profile
POLITICS

Grace Fan

Show Profile
POLITICS

Constantine Fraser

Show Profile
POLITICS

Madina Khrustaleva

Show Profile
ECONOMICS

Through our analysis of the forces that drive economics at the global, regional and country level, we have a joined-up picture of the world economy and a deeper understanding of the countries that investors care about. This gives us a unique perspective that allows us to present courageous, fresh, long-term thinking and forecasting with high conviction.

FIND OUT MORE
MARKETS

Using the wealth of macro economic, policy, and global political insight at our disposal, our team of strategists are able to provide actionable, unbiased advice on asset allocation, investment positioning and portfolio risk management.

FIND OUT MORE

Menu

Client Login


Don't have an account? CREATE YOUR ACCOUNT
READ MEET TALK