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

Detailed analysis of geo-political themes that drive global risk appetite among investors. (Fortnightly on Thursdays)

EM Watch

Analysis of global EM sentiment drivers and fundamental or policy country developments. . (Every Monday)

The GRID

Fundamental guide to emerging market growth drivers covering 10 major EM economies. (Monthly)

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)

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)  

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)

LatAm Notes

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

SE Asia Notes

Regional coverage supported by local sources with emphasis on Philippines, Indonesia, Thailand, Malaysia. (1 note per month)

Politics Research

Politics
08 Jul 2019

EM Watch: Asset Allocation + Chart Pack

  • Strategy: Asset Allocation summary
  • China: Weaponizing interdependence
  • Brazil: Resilient trade balance despite tensions
  • India: Thumbs down to the budget
  • Russia: Faster rate cuts signalled
  • Mexico: Consumer demand stays sluggish
  • Malaysia: Trade data point to better growth
  • Turkey: Rate cuts coming after CBRT firing
  • Strategy: Close Indonesia equities, Mexico credit
  • Monthly EM slide deck: EM in Charts
READ ME
Politics
08 Jul 2019

India: Budget in charts: Fiscal targets are questionable

  • A lower-than-expected headline fiscal deficit is surprising, especially as the revenue targets appear overly optimistic and welfare spending has been significantly increased.
  • Equity investors sold off after the budget partly owing to higher proposed taxes for foreign portfolio investors, but bond yields fell to a two-year low following the government’s plan to issue India’s first sovereign bond overseas.
  • A record disinvestment aim will depend heavily on Air India’s privatization.
  • The budget is also relying on a larger RBI dividend even as the exit of another top central banker raises fresh worries about the RBI’s independence.
  • Another policy rate cut is likely in August, which will lower the repo rate by a cumulative 100 bps in 2019.
READ ME
Politics
01 Jul 2019

Global Political Drivers: Central Bank Dethroning

  • Trump has broken the taboo of modern central banking
  • This is a harbinger of wider politically-driven changes to central banks
  • The politically turbulent UK looks like a prime guinea pig candidate
  • Either a Labour or a hard Brexit government could politicize the BoE
READ ME
Politics
21 Jun 2019

Global Political Drivers: Gulf tanker war and oil shock

  • The incentives of the belligerents in the new Gulf stand-off ensure continued provocations; and escalation from here would take the form of a much more serious tanker war than its 1980s predecessor.
  • The effects of this situation will not be limited to fleeting oil price spikes: the threat of such a war will inject a premium into the oil curve.
  • Even were Iran to balk at escalation in response to any air strikes by the US or its allies, the pattern of deniable provocations would resume.
  • This spells an upward oil price spiral which, in the event of an all-out tanker war, would spike well above $100/bbl for a few weeks before retreating to still elevated levels, driving up inflation and yields.
READ ME

Track Record

Politics
18 Jan 2019

2019: RBI will surprise with Feb rate cut

Consensus said:

RBI expected to keep rates on hold at their February meeting. 

We said:

The new RBI chief will be more amenable to the government's demands. Das seems inclined towards easier monetary conditions and could help start a rate-cut cycle as early as February.

On his first day in office in December, Das said that the inflation outlook was benign. With headline CPI inflation well below the central bank's 4% target for the past five months, the RBI faces pressure to cut interest rates now. Das may take a more pro-growth view, and the forthcoming 7 February monetary policy committee meeting - the first under his governorship - will clarify his view on inflation. As the RBI governor, Das holds the casting vote in the event of a tie. 

Outcome:

RBI cut rates by 25bps in a move which shocked markets and analysts. 

Politics
29 Nov 2018

2018: On the road in India, BJP will lose state elections

Consensus said:

Opinion polls had shown the BJP leading in Madhya Pradesh and Chhattisgarh, but behind the Congress Party in Rajasthan. 

We said:

There is a real possibility of a BJP loss in all three states currently governed by the Party in its heartland stronghold of Rajasthan, Madhya Pradesh and Chhattisgarh, and such an outcome will spook investors who have been counting on Modi's re-election next year. A BJP defeat in the polls will likely increase pressure on Modi to ramp up spending with all the resulting macroeconomic risks and market volatility. 

Outcome:

BJP was defeated in all three state elections and, at the time of writing, look likely to lose their majority in the general election to be held in April and May 2019. 

Politics
31 Oct 2018

2018: Costs of RBI-Government Spat

We said:

Deputy Governor Viral Acharya's speech last Friday on central bank independence brought the rift between the government and the RBI glaringly out into the open. The RBI appears to have forced the government to back off, at least for now, with the Finance Ministry finally saying that it respects the RBI's autonomy as it sought to calm jittery investor nerves.

The RBI's top leadership has made it evident that it will stand its ground on the three issues it has specifically mentioned - the state-run banks, the use of its reserves and its regulatory scope. But Governor Patel's days as the RBI chief seem to be numbered. 

 

Outcome:

Governor Patel resigned on 10 December 2018. Investors remain wary of the government's attempts to influence RBI policy and their independence remains at risk. 

Politics
16 Aug 2018

2018: Russian financial deepening a shock-absorber

Consensus said:

Russian geopolitical risk premium to hamper asset prices. 

We said:

Financial deepening is an important long-term driver of improved risk adjusted investment returns in EM. In Russia the short-term benefits are becoming clear. 

Monetary policy underpins the recent advances and brightening prospects of financial deepening in Russia, but fiscal policy is also contributing to the strengthening local bid that speeds recovery from periodic market turbulence. The aftermath of the latest sanctions scare this month will show this live benefit of financial deepening in action once again. An imminent and decisive breakthrough is the launch of a new pension investment system - reducing fixed income risk premium and particularly benefitting the equity market. 

Financial deepening is also creating opportunities in the here and now. Our first 'Exhibit' in this note highlighted the importance of the structurally stronger local bid for the OZF recovery from last April's sanctions shock. At the time of writing, only a week has passed since the latest bout of sanctions-related Russian market turmoil. Signs of stabilization are already apparent, and, once again, a prompt recovery is to be expected. These live episodes show financial deepening in action. 

Outcome:

Russian stocks rose from 2,261 on publication date to peak at 2,493 on 3 October 2018. Russian assets did not suffer as much as other EMs during risk-off episodes in autumn 2018. We attribute some of the relative resilience to financial deepening. 

Politics
05 Jul 2018

2018: Brexit noise a buying opportunity

Consensus said:

Risk of a no-deal crash out is too big to be ignored and is reflected in sterling weakness. 

We said:

Brexit-related noise in UK politics is rising to a new pitch, prompting a review of our existing call that the risk of a 'no-deal-crash-out is negligible. Noise means market volatility with sterling as ever in the front line. Noise is not only inevitable in a political process as fraught as Brexit but also an intrinsic feature of that process. The reason for this is brinkmanship. It is in the nature of such negotiations to go down to the wire. Moreover, the UK government has an interest in brinkmanship to improve its chances of persuading various potential rebel camps that they must choose between the Brexit solution on offer, however distasteful it may be to them, or the worse alternatives of Brexit never happening and/or a government collapse and the risk of Jeremy Corbyn's Labour coming to power. 

Periods of heightened volatility for sterling - and UK financial assets - are to be expected between now and next March. This volatility will reflect fears of a crash-out Brexit. Based on the political realities, such episodes should be viewed as opportunities to buy on weakness. 

 

Outcome:

Since publication there have been many moments of political deadlock, drama and fear. There have been 5 sharp sell-offs in sterling vs EUR and on each occasion sterling has bounced and the losses have been quickly recovered. Buying the dips proved to be a profitable strategy. 

Politics
25 Jun 2018

2018: Mexico - AMLO will win presidency and Congress

Consensus said:

Morena’s party alliance is unlikely to reach absolute majority in Congress

We said:

AMLO’s expected victory possibly represents the largest change in the political regime of the country in modern times. Moreover, his victory could lead to significant gains in congressional seats too, as Mexicans have historically voted for the same party in both the presidential and congressional ballots

Outcome:

Morena’s party alliance obtained a landslide win for the presidency and achieved an absolute majority in Congress in 1 July’s election

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
POLITICS

Eleanor Olcott

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
TRIAL