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 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.
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.
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.
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.
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)
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)
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)
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)
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)
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)
Regional coverage with emphasis on Mexico. Economists and strategists travelling to each region, supported by local sources. (1 note per month)
Markets pricing in chances of Le Pen victory, euro area spreads widening and talk about the future of the euro
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)
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.
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)
Li Keqiang announced a lower growth target of “around 6.5%”, the lowest in 25 years, on 4th March 2017.
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)
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.
Large speculative positions for a repeat of the August 2015 RMB step devaluation.
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)
USD/CNY weakened from 6.46 on date of publication to 6.96 on 3rd January 2017.
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)
Investors disappointed by reform progress. Shanghai Composite Index move sideways for 2 years.
Markets up on confidence in new Finance Minister Joaquim Levy.
We think his honeymoon with the markets will end soon for the following reasons:
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.
Chairman, China team and Managing Director, European Political Research
Jonathan Fenby has covered China for 20 years, focussing on policy and the politics of the regime, and their impact on the economy. Former editor of the South China Morning Post, he has written eight books on China and visits the country several times each year.
His involvements with Europe dates back to 12 years covering France and Germany for the Economist, the London Times and Reuters. He has a widespread network of contacts across the continent and has written four books on France as well as writing and broadcasting regularly on European affairs for French, German, Swiss, Belgian and US media as well as speaking at conferences.
Jonathan was appointed a CBE in 2000 for services to journalism and has also been made a Knight of both the French Legion of Honour and the French National Order of Merit. He is a member of the advisory boards of China Dialogue and the central bank organisation OMFIF. He is an associate at the London School of Economics (LSE) and London University's School of Oriental and African Studies (SOAS).
Managing Director, EMEA and Global Political Research
His 25 years’ experience covering the political economy of Russia and other FSU countries, including time working in Moscow-based investment banks where he was a top-ranked strategist and political analyst in broker surveys, started with a posting in Moscow as a UK diplomat in the early 1990s. In the decade from co-founding Trusted Sources until its merger with Lombard Street Research to form TS Lombard in 2016, he has also been producing broader political analysis on EMEA regional markets and geopolitics. Academic work in Italy during the 1980s underpins his lifelong interest in that country’s political economy. He is a regular commentator on FSU affairs in broadcast media and leading op-ed columns. He graduated from Oxford University, where he was also a Fellow of All Souls College.
Managing Director, Brazil Research
Elizabeth joined TS Lombard in 2006 as the head of the Brazil research team . With over 25 years covering the country, she concentrates on political and economic policy, together with broad expertise in such key sectors as electric energy, infrastructure, agriculture and consumer-related issues. Elizabeth spearheads TS Lombard coverage of key investment themes including credit deepening, for-profit education as well as the complex relationship between Brazilian state-owned oil company Petrobras and the government.
Before joining TS Lombard, Elizabeth worked for publications including the Financial Times, Foreign Policy and Dow Jones. She has more than a decade of experience covering the Latin American private equity and venture capital industries and is considered a leading expert in this field. She also has broad knowledge of biofuels, sanitation and alternative energy. She has a PhD degree from Johns Hopkins University and a Master’s degree from the University of Texas – Austin, and has worked as a field producer for CNBC and National Geographic.
Marcus Chenevix joined TS Lombard full time in September 2016 having contributed as a freelance analyst since August 2015. He is a fluent Arabic speaker who has previously studied and worked in Oman and Egypt.
Marcus writes on Middle Eastern markets, focussing on the GCC and Turkey, he also writes on regional political issues for the Global Political Drivers service. He has previously worked for the United Nations Refugee Agency in Egypt and has a degree in Middle Eastern Studies from the University of Cambridge, where he specialised in the study of political Islam.
Political Analyst, India Research
Amitabh joined TS Lombard in 2007 and is co-head of the India team focussing on politics and governance. He helps investors find investment opportunities in sectors such as infrastructure and mining and also analyses the investment impact of major government initiatives in areas such as biometric identification, financial inclusion and food security. His main themes are the limits on executive power, state capture and crony capitalism. He successfully anticipated the importance of the Modi government’s lack of upper house majority. Amitabh has previous experience as a political risk analyst and as a business journalist in India with Business Standard and Business India Television. He has many TV appearances on CNN, CNBC, Al Jazeera, NDTV and CNN-IBN and publishes in the Financial Times. He has degrees in economics and political science from Delhi University, the University of Chicago and Columbia University.
Senior Director, Latam Research
With more than 15 years of on-the-ground experience in Brazil and other Latin American countries, Grace has worked at TS Lombard since 2007 and specializes in economic and fiscal policy, political risk, energy and infrastructure as key research themes. She also has broad sector expertise in core areas spanning oil & gas, clean energy, agriculture and consumer demand. Prior to Trusted Sources, she worked as a journalist and published articles in The New York Times, The Wall Street Journal, The Asian Wall Street Journal, Barron's and Dow Jones Newswires among other publications. She is a graduate of Harvard University and has an MBA from Brazil’s Getulio Vargas Foundation.
Analyst, European Research
Constantine Fraser is an Analyst in our European Political Research team, with particular interests in French and Italian national politics and in European integration. He previously worked in the Global Public Affairs team at the communications firm Edelman. He speaks fluent French and advanced Italian and Modern Greek, and has written for UK and foreign media. He graduated from the University of Oxford with a degree in Philosophy and Modern Languages and a university prize, and has an MSc in Political Theory from the LSE.
Analyst, Russia & FSU Research
Madina was educated at the Urals State Technical University in Yekaterinburg, where she majored in economics and management (focused on mining and manufacturing). She moved to Moscow for graduate studies in finance at the Higher School of Economics, where, before joining TS Lombard, she went on to become a lecturer in financial management. Madina also has experience in the Investments and Strategic Development Department in a major listed Russian steel group and in business journalism for a regional television network in the Urals.
Eleanor joined TS Lombard in September 2018. She specialises in Chinese politics and political economy. Eleanor graduated from Cambridge University in 2017, with an academic award, and continued further study at National Taiwan University, learning Mandarin. Eleanor’s writing has previously been published in The Guardian and Japan Times, and she has done work experience at The BBC, The Economist, and Sky News.
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