Source: Reuters
By Peter Apps, Political Risk Correspondent
LONDON, Jan 4 (Reuters) - The risk of sovereign debt default, looming elections, social unrest, populism, and thorny relations between the United States and China could all hit global markets in 2010.
Reuters has moved a series of factboxes on the key political risks facing each region of the world. [ID:nLDE5BK0X2]
SOVEREIGN DEFAULT RISK
For global markets, probably the main political risk would be one of the world's more troubled economies defaulting or coming close to default on its sovereign debt -- ultimately a political decision. [ID:nN11259082]
Worries over Dubai, Ukraine and Greece have all spilled over into global markets in the last month, and all three look set to remain under economic and political pressure in the coming year, even as most other countries return to growth.
A renewed crisis in one country could spark a wider sell-off in bond markets that would pressure other investors to question again "implied guarantees" that richer neighbours would step in to help the debtors meet their obligations.
Among those in the spotlight over public debt will be euro zone weak links Portugal, Italy, Ireland, Greece and Spain -- dubbed insultingly the PIIGS -- as well as non-euro Britain. Worries have already helped drive strong demand for U.S. Treasuries [ID:nN1873880]
What to watch:
-- Does Ukraine continue to make bond coupon payments? How long does political instability persist after a Jan. 17 presidential election? [ID:nGEE5AN110] [ID:nGEE5B9114]
-- Any clarity on support for Dubai's conglomerates from oil-rich fellow emirate Abu Dhabi, which investors had assumed would step in. For Dubai stories, click here [ID:nLDE5BK06H]
-- Do Greece and others take enough austerity measures to satisfy markets? In the light of comments by policymakers, how strong is the "implied guarantee" from the EU and Germany? [ID:nLDE5BK06H] [ID:nGEE5B815W] [ID:nBAT005017]
ELECTIONS
A number of important elections loom this year, with U.S. mid-term congressional elections coming alongside likely changes of leadership in Britain and Brazil, as well as a host of votes in emerging Europe that could have wider consequences.
In the United States, all 435 seats in the House of Representatives and one third of the 100 Senate seats will be up for grabs November 2, with the Democrats seen suffering from a strong anti-incumbent mood [ID:nN12418931].
In Britain, Labour Prime Minister Gordon Brown looks likely to lose parliamentary elections, which must be called before June, to David Cameron's Conservative Party. But markets worry about the prospect of a hung parliament with no outright majority. [ID:nLDE5BD1ER]
In emerging Europe, elections are due in Hungary, Latvia, Ukraine, Poland, the Czech Republic and Slovakia.
Australian Prime Minister Kevin Rudd is widely expected to win another term, with the only question being the timing of the election. [ID:nSGE5BE00L] But elections in the Philippines [ID:nSP510426] and Sri Lanka [ID:nSGE5BE023] are harder to call.
What to watch:
-- Pre-election positioning weighing on U.S. policy from climate change to Afghanistan and healthcare. Republican challengers jockeying to take on President Barack Obama in 2012.
-- Any signs Britain is heading towards a hung parliament will unsettle sterling. Clarity from policymakers on likely spending cuts with Britain's credit rating under pressure.
-- Local politics imperilling International Monetary Fund rescue deals in emerging Europe, with Ukraine, Latvia, Hungary and Romania most in focus. [ID:nGEE5B70ZL]
UNREST, POPULISM, RESOURCE NATIONALISM
Social unrest has risen less than many expected as a consequence of the economic crisis, but risks are seen growing in 2010 as Western governments exit from stimulus packages and discontent builds up amongst the unemployed. [ID:nLDE5BH0LM]
Civil unrest in China would be particularly unsettling for markets, but the crisis could fuel instability from Thailand to South Africa to Iran.
Overall, the crisis is seen pushing politicians towards more populist policies, such as attacking bankers' bonuses or stepping in to support struggling industries.
A global recovery in commodity prices could stoke resource nationalism, particularly in Africa and Latin America, raising the threat of expropriation from foreign investors. [ID:nL5588746]
Opinions are divided on whether the crisis has boosted protectionism. A December pressure group report identified dozens of potentially protectionist measures introduced in recent months [ID:nLDE5BD179] but the World Trade Organisation says there has been no major breakdown [ID:nLDE5BH0X0].
What to watch:
-- Signs of unrest in Europe, particularly in Latvia and Greece -- the most exposed Western and emerging EU states respectively. Both could be bellwethers for the wider continent. Reports of xenophobic attacks on minorities.
-- A dramatic commodity price spike, particularly in foodstuffs, could raise pressure on foreign resource projects particularly recent land deals in Africa.
-- Any overt protectionist measures or heightening rhetoric, particularly between the United States and China. Any acknowledgement by the WTO protectionism is rising.
UNITED STATES AND CHINA
The United States and China are already by far the two most important countries in terms of political clout. In 2010, China is set to overtake Japan as the second-largest global economy. The "G2" relationship is key to shaping our destiny not just in the coming year or coming decade, but through the 21st century. Like most relationships, it is not easy.
Pressure on China to allow the yuan
Beijing will not want to jeopardise economic growth by letting the currency rise too quickly, and does not welcome being told what to do by Washington or the European Union. In the United States, meanwhile, yuan weakness is regarded as a protectionist policy that threatens the U.S. recovery.
Most analysts say Washington and Beijing are painfully aware of the risks and would step back from the brink before any dispute threatened the global economy. But the two countries have yet to find a way to communicate comfortably as partners.
What to watch:
-- The battle over the yuan. Will Beijing let it appreciate, and if not, how will Washington react? [ID:nSP87477]
-- Protectionism and trade tariffs. If President Barack Obama imposes more tariffs, under pressure from Congress and domestic industry, expect sparks to fly. [ID:nLR352231]
-- Any disputes arising from China's dealings with North Korea, Myanmar, Iran and other "rogue states". [ID:nPEK192670]
UNPREDICTABLE CRISES
Ongoing confrontation over Iran's nuclear programme remains a risk, particularly for energy markets, and the situation is complicated by deepening domestic instability following last year's disputed presidential election. [ID:nHAF152285]
North Korea continues to be dangerously unpredictable, with potential scenarios ranging for a war to the death of leader Kim Jong-il -- an event that might prompt a reunification that could prove financially crippling for South Korea. [ID:nSP523325]
Both Nigeria and Thailand could face market uncertainty over the health of their president and king respectively. Both were hospitalised in 2009.
Analysts expect al Qaeda and its allies to try to spark conflict between nuclear-armed neighbours Pakistan and India. [ID:nGEE5B5050] And Pakistan's weak government, under threat on several fronts, may have its own reasons to focus popular anger on India.
The attempted bombing of an airliner bound for Detroit on Christmas Day shows that attacks on Western targets also remain a threat.
What to watch:
-- Turmoil in Iran. Western decision on sanctions in 2010. Potential split in the ruling establishment.
-- Any news on the health of Thailand's 82-year-old King Bhumibol Adulyadej, Nigeria's President Umaru Yar 'Adua or North Korea's Kim. (additional reporting by Andrew Marshall; Editing by Paul Taylor)
1 comment:
nice post. thanks.
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