Sunday, February 10, 2013

Top 10 Geopolitical Risks for 2013

The World According to Reuters.
Reuters has identified the top 10 global threats facing markets for 2013, in ascending order, starting with the least riskiest:

1. South Africa
The ANC struggle to govern effectively in a country swamped by mining strikes. This is bound to impact growth and investor confidence.
Nigeria remains volatile and in the background, but did not make the top 10 list.

2. India
Corruption continues to impede credible governance.

3. Iran
Relatively low on the radar screen as the risk of a military attack is perceived as low. The red flag is sanctions, which is seen as impacting the economy and prompting the possibility of political upheaval.

4. Asia Geopolitics
China has a more assertive military strategy and some countries will struggle to maintain alliance.

5. Europe
Lower risk in 2013 with stronger banking union. Reuters does not view the possibility of fragmentation as likely.

6. JIBs
Japan, Israel and Britain
There are three main losers in the global geopolitical process.  The challenge for Japan to respond to China's growth from a military perspective. Although Britain is outside EU crisis, it is on the periphery and will consequently be impacted. Israel will be affected by the Arab awakening and a long hot summer.

7. Washington Politics
Washington doesn't work. No prospect of bipartisan agreement, which will bring down growth and what otherwise would have been a relatively successful economic story.

8. Arab Summer 
Political radicalism is growing. Syrian problem will unfold.  Possibility of contagion.

9. China 
The country's challenge, need and inability for it to control information.

10. Emerging Markets
Currently, responsible for two thirds of world growth and at the high end of the risk spectrum.. Indonesia, Egypt and  Iraq do not have political capital to progress. Russia should not be a BRIC. Venezuela and Argentina continue to inspire doubt about their ability to govern effectively.

In a separate category, North Korea, remains the unplayed card. Exactly how politics will unfold in that country remain an enigma.

Top Financial Risks in 2012 Revisited

The top financial risks, as perceived by analysts (polled by Reuters) for the fourth quarter of 2012 were:
  • The fiscal cliff
  • Low growth and unemployment
  • The possibility of a Greek exit from the EU
  • The Euro Zone debt crisis
Going forward in 2013, nothing much seems to have changed. These factors are still very much in contention for potential blow-ups, although they are currently being managed (or pushed out) by politicians. In order to eliminate the risks significantly, more meaningful action will be required.

The only variable, which is a little more of an enigma than the other risks, is the possibility of Greece exiting the EU. Exactly the extent of this risk escapes quantification. An exit from the EU by Greece may in fact improve the position of that country and prospects for Europe in general. Uncertainty may prevail for a short period, as  politicians come to grips with the fact that the world will not end.