Verisk Maplecroft Releases Latest Geopolitical Risk Outlook: Keep An Eye on Emerging Markets

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Emmanuel Macron’s win in the French presidential election was a temporary boon for geopolitical stability, as was Moon Jae-in’s election as the new president of South Korea. U.S. president Donald Trump, however, has managed to become even more of a wildcard.

In addition to the above, many emerging markets are at risk of growing instability, according to global risk research firm Verisk Maplecroft, which recently released its 2017 Geopolitical Risk Outlook. Turkey, South Africa and Venezuela number among those most at risk. This post will summarize some of the findings from each geographical area covered in the report.

Europe remains on a political tightrope. Although fears of the European Union falling apart have been somewhat assuaged by Macron’s win, consider it a quick breather before general elections next spring in Italy, where anti-establishment sentiment is strong. Although “anti-establishment parties … have failed to achieve electoral breakthroughs in major Eurozone countries so far,” Maplecroft researcher Florian Otto wrote, “they have gained enough critical mass to spook markets.” 

Since Donald Trump became president of the U.S., the world has been guessing how his unforgettable campaign rhetoric would translate into action. So far, Trump has been unpredictable when it comes to foreign policy, and his “lack of [predictability] will continue to trigger spikes in geopolitical tensions during his presidency,” the report concluded. Recent speculations that Trump may be ousted early from the presidency, slim though the chances may be, can only increase the uncertainty and tensions.

The upper-right quadrant of the chart above shows emerging markets that are at high risk of both political disruption and financial vulnerability. In fact, Maplecroft expects “most [emerging markets’] political stability to worsen over the next two to three years,” while the U.S. Federal Reserve continues scaling back monetary stimulus. However, Maplecroft expects Colombia — following last November’s peace treaty between the government and the Revolutionary Armed Forces of Colombia (FARC) — Brazil and Russia to be exceptions to the trend.

“Washington’s domestic energy policy is of equal — if not greater — significance than its foreign policy agenda,” writes Maplecroft analyst Torbjorn Soltvedt of the Middle East’s oil-producing countries. According to Maplecroft’s Government Stability Index Projection, most Middle Eastern oil producers will see decreased political stability by 2019, and falling oil prices are a major factor.

Saudi Arabia is at most risk, Soltvedt writes, “needing a price of $90 USD per barrel to balance its budget.” Kuwait, whose sovereign wealth fund is more than fivefold its GDP, is at the end of the risk spectrum, along with the United Arab Emirates, which is forecast to remain politically stable. Iran lies in the middle. Although oil is currently only 11% of the country’s GDP, that figure is expected to grow.

The Democratic Republic of Congo is also expected to become less stable in the next three years, following the rollback of the controversial Dodd-Frank Act. Although the consequences of conflict minerals regulations have been quite debatable (and on the receiving end of criticism from across the political spectrum), Maplecroft argues that “the law’s suspension is one in a series of conditions that raises fears of a return to conflict as seen in the country at the turn of the century.”

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