Expert Zone

Straight from the Specialists

Decoding political risk no mean feat

Photo

(The views expressed in this column are the author’s own and do not represent those of Reuters)

Politics is playing a dominant role in financial markets today — and generally speaking, investors do not like it. Political risk is an additional layer of uncertainty that has to be factored in while making investment decisions. Because political risk is intimately linked with the uncertainties of human behaviour, the impact of political risk can at times seem to be almost random. After over two decades as a professional economist, I can assert that forecasting economies is tough. Trying to forecast what politicians are going to do is even worse.

Consider how politics in one part of the world can have repercussions on the other side of the globe. Chinese politics has impacted the most unusual areas this year. China as a country is relatively poor. China is also a society that is relatively unequal in terms of its income distribution. Estimates put the number of Chinese millionaires at around 1.4 million, the second highest number in the world — which means that the Chinese market for luxury brands is important. Or rather, it was.

The politics surrounding the Bo Xilai affair has led to a change of policy in China. The Xinhua news agency reports there are new rules restricting official spending on vehicles, overseas trips and other areas that might be termed “luxury spending”. Associated with that, the practice of gift giving has declined. The result is a poor outlook for luxury brand sales in China at the moment, arising from local political pressures. Investors who thought luxury good producers would benefit from the nouveau riche of China are now likely to be disappointed, and it is all due to politics.

Is inequality inhibiting growth?

Photo

By Raghuram Rajan
The opinions expressed are his own

To understand how to achieve a sustained recovery from the Great Recession, we need to understand its causes. And identifying causes means starting with the evidence.

Two facts stand out. First, overall demand for goods and services is much weaker, both in Europe and the United States, than it was in the go-go years before the recession. Second, most of the economic gains in the U.S. in recent years have gone to the rich, while the middle class has fallen behind in relative terms.

What if Greece exits the euro zone

Photo

(The views expressed in this column are the author’s own and do not represent those of Reuters)

While the idea of a Greek exit from the euro zone has long been rejected by politicians and deemed nothing more than a “tail risk” by most investors, there has been a clear shift in opinion after the Greek election in early May failed to form a new government. The repeat election on June 17 is therefore critical to the country’s future in the euro zone and to financial markets worldwide. If Greece fails to form a new government, or forms one that rejects its bailout plan with official creditors, the probability of an exit would rise significantly.

The hazard of second best

Photo

By Mohamed A. El-Erian

(The views expressed in this column are the author’s own and do not represent those of Reuters)

NEWPORT BEACH – The international community risks settling for second best on two key issues to be discussed this month at global meetings in Washington, DC: the lingering (if currently somewhat dormant) European debt crisis, and the selection of the World Bank’s next president. It is not too late to change course, but doing so will require the United States and governments in Europe to resist harmful habits, and emerging countries to follow up effectively on recent initiatives.

What the Euro means for Asia

Photo

(The views expressed in this column are the author’s own and do not represent those of Reuters)

The Euro should not exist. In a perfect world (run by economists) the Euro would never have been created. Sadly, however, the world is not perfect — and it is run by politicians. The result is an entirely dysfunctional monetary union.

Fallout of recession in euro zone

Photo

(The views expressed in this column are the author’s own and do not represent those of Reuters)

It will not be before February that the euro zone GDP numbers are out. The available information so far indicates the economy is already in recession. This will have serious consequences for all countries, including India.

Stock market under stress

Photo

(The views expressed in this column are the author’s own and do not represent those of Reuters)

The first big jolt to the market after the 2008 crisis had come last August when FIIs disinvested 95 billion rupees worth of equity and moved into liquid assets. That brought the Sensex down by 1500 points and pulled the dollar up by 4 rupees.

Too many questions, no convincing answers

Photo

(Nipun Mehta is an award-winning private banker with many years of experience across Asia. The views expressed in the column are his own and not those of Reuters)

If one were to evaluate global events of the last four years dispassionately, the subprime mess in the U.S. and the imminent debt default by Greece (and four other countries to a lesser extent) and the resultant crisis in the euro zone have virtually held the global economy to ransom.

  • Editors & Key Contributors