2018 is upon us… here are some major geopolitical risks

It’s going to be a busy year in global politics – and that means fresh risks for investors. Here’s a few you should be watching this year.

Italian elections
Italy’s President Sergio Mattarella called elections for early March, a vote that will highlight the economic and political problems still stalking Europe and the country’s role as one of the weakest areas of the currency union.

German stability
Chancellor Angela Merkel is facing a rising tide of condemnation as she repeatedly tries to form a union that can govern the country.

With her CDU (Christian Democratic Party) having already failed to reach an agreement with the CSU (the Christian Social Union Party headed by Martin Schulz), popular support for the Chancellor is dwindling.

Germany represents a key cornerstone of the European Union besides France, and long term political destabilisation may pull down the value of the Euro and German stock markets (DAX30).

The Middle East
An emboldened Israel and Saudi Arabia may change the power dynamics of the Middle East, especially with the US backing them more strongly than ever before.

President Trump’s close relationship with Israeli leader Benjamin Netanyahu and his disdain for Iran and the nuclear deal signed by his predecessor Barack Obama may force Tehran into a corner, while Saudi Arabia is looking to exert stronger influence across the region, made possible by wider American support.

It looked as if the North Korean crisis would escalate into an armed conflict at many points throughout 2017, but fortunately the world avoided a full-scale war which may have killed millions across the Korean Peninsula and elsewhere.

Despite firing rockets over Japanese territory, testing ever more advanced missiles and issuing countless threats to eradicate America, North Korea faced no military action from the US or its allies in the region (Japan and South Korea). The threat remains as great as ever for 2018.

Catalan separation
A win for pro-independence parties in the Catalonian election on December 22 will deepen Spain’s political crisis further, as questions remain over what moves independence parties will make next.

Separatist groups won 70 out of 135 seats in the Parliament of Barcelona, in a major humiliation for the Prime Minister Mariano Rajoy, whose odds of being victorious seemed to be assured. However, his party (the ‘People’s Party’) ended up only winning 3 seats.

Though separation from Spain may be good in the eyes of pro-independence voters, it may deter foreign investment further. Official data shows foreign direct investment in Catalonia fell by 75% in the third quarter of 2017 from a year earlier, dragging down the rest of the country too. This is definitely something to keep an eye on for next year, especially if you own Spanish equities.

A push to pass an infrastructure package may be coming next year, as Trump moves on from his first major success on tax reform.

But there is still a major problem for the President – the Mueller investigation looking into his links with Russia.

To date, four former members of Trump’s campaign team have already been claimed by Mueller’s probe. Former campaign manager Paul Manafort and campaign official Rick Gates were handed a 12-count indictment, while two ex-campaign advisers George Papadopoulos and Michael Flynn each pleaded guilty to lying to the FBI about contact with Russians.

What next for the Eurozone?
Emmanuel Macron’s attempts to revamp France’s labour market will spur economic growth and boost confidence but their impact will take time to have an effect, according to a Financial Times survey of eurozone analysts.

The poll which involved 34 economists also found that most believed a new “grand coalition” government in Germany would help the eurozone to continue its recovery, but Italy’s impending election was viewed as one of the largest risks to stability.

India’s growth story
It was a fantastic year for Indian equity markets.

Though a large scale problem with non-performing loans in the banking sector and the long term repercussions of Narendra Modi’s demonetisation plans last year are still causing concern, the future is bright for one of the worlds most attractive developing economies. The World Bank has also praised India’s economic achievements and is optimistic about its future.


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