The ViewPolitical uncertainty in Malaysia, Argentina and Turkey fails to faze investors, but wider risks remain

Nicholas Spiro says country-specific risks may not rock global markets, but investors must be watchful about trade tensions, the euro-zone economy and interest rates

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Pedestrians stand outside the Bank of the Argentine Nation in Buenos Aires on May 10. Argentina is facing stormy economic weather as the value of the peso has slid in recent weeks. Photo: Bloomberg

Published: 1:00pm, 14 May 2018Updated: 10:33pm, 14 May 2018

When it comes to heightened political risk, there is no shortage of hot spots. Last Friday, Argentina’s currency, the peso, sank to a fresh low against the US dollar partly because of fears that the decision by the country’s president, Mauricio Macri, to ask the International Monetary Fund for an aid package to shore up the economy lacks popular support. The country is still traumatised by the pain inflicted by previous IMF-backed adjustment programmes.

Two days earlier, the stunning victory of Mahathir Mohamad in Malaysia’s parliamentary elections fuelled concerns that he will endanger Malaysia’s fiscal position by scrapping a goods and services tax which, although unpopular, has become a crucial source of government revenue. Mahathir is renowned for his distrust of currency speculators and his imposition of capital controls during the Asian financial crisis,

In Italy, meanwhile, a deal between the two anti-establishment parties viewed as the winners of the country’s inconclusive parliamentary election in March is likely to result in the formation of the first government of a leading European economy that is openly hostile to the rules underpinning the euro. The nation with the second-highest public debt burden in Europe and with one of the most vulnerable banking sectors appears set to be governed by a populist-nationalist coalition.

The global economic backdrop ... remains benign while corporate fundamentals are solid

There are plenty of other sources of political risk, including the politicisation of monetary policy in Turkey which is contributing to the sharp slide in the country’s currency, the lira, and, more worryingly, the increasingly protectionist policies of US President Donald Trump which have led to a severe escalation in tensions over global trade.

Yet despite the increase in market-unfriendly political developments in both advanced and developing economies, there is scant evidence that these threats are affecting broader sentiment in global markets.

.css-1c6uqr6{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;overflow-wrap:break-word;}Nicholas Spiro says country-specific risks may not rock global markets, but investors must be watchful about trade tensions, the euro-zone economy and interest rates

Nicholas Spiro says country-specific risks may not rock global markets, but investors must be watchful about trade tensions, the euro-zone economy and interest rates