From the CEO – December 2020
Apart from some very impressive market gains, we’ve come to the close of a year that has been loathed almost universally and which has wrought countless sufferings on millions worldwide. We are cautiously optimistic that 2021 will be a better year. But as we’ve seen in the US with the ‘rollout’ of the vaccine so far, the road to ‘normalcy’ will take some time and most likely not resemble our pre-COVID days.
As is standard practice at the beginning of a new year, those of us in the risk business are asked for our ‘top picks’ for the next 12 months – those ‘surprises’ that nary a soul will see on the horizon and which will set the geopolitical risk world on its head (I realize I’m overstating this point), so that claims to superior insights will be indisputable.
We could do this and offer up our own list. And to some extent, our bullish and bearish calls in the ICRG Investir newsletter provide client guidance and recommendations based on our risk metrics. A number of these calls turned out to be very accurate and quite profitable (long South Korean shares, short USD, et al), but in terms of more wide-ranging expectations, driven largely from our data, a few stand out.
Issues of inequality, sovereign debt, spending and taxes, and the role of government will capture much of the attention of policymakers and private actors. As some recent studies using our ICRG data have shown, pandemic events produce higher levels of civil disorder after roughly 14 months from the onset of the disease.
This suggests therefore that a rocky spring and summer are in store for both a number of developed and emerging markets, underscoring the extent to which the various vaccines available might not be available in a uniform fashion. Complicating matters, governments globally will be expected to use their powers more aggressively, bringing into focus the appropriate reach of the state.
Given debt levels and fiscal gaps, the role of multilateral organizations (e.g., IMF, World Bank) will become more effective players in the years ahead, which, in turn, offers a decidedly different take on those that argue we are in a de-globalizing world.
In terms of asset classes, we are quite bullish on agriculture and other select commodities as well as country equities that have managed to contain the virus well, hold solid balance sheets and the ability to spend, and have modest external financing needs. Some Eastern European and Middle Eastern countries fall into this category (Russia, Bulgaria, Latvia, Algeria, Saudi) and we are also looking at those credits that offer some longer-term value if and when it appears a new political order is emerging that will be particularly open and more dynamic to enterprise. Belarus is one such example.
Clients should consult our extensive ICRG risk tables for additional insights for country selection in the year ahead.
December was another solid month for new and returning clients, ranging from some of the world’s top universities to the largest institutional investors throughout the US, Europe, the UK, and the Middle East and Asia.
We are especially happy that our data is being used by an increasing number of institutional investors as the empirical connection between our select risk indicators and various asset classes become more pronounced and tradable. For decades, PRS’ reach has been global, offering the absolute best quant-driven and independently back-tested data available anywhere.
We are pleased to announce some new products for 2021, including specific data bundles and more online and timely risk forecasts. The new data bundles will be especially useful for our academic clients as they are the most oft-used data series in published works in some of the most prestigious journals globally.
Quid Periculum? Measuring & Managing Political Risk in the Age of Uncertainty, co-edited and co-authored by Peter Marber (Harvard/Aperture Investors) and me, is set for an early 2021 release. The book includes such diverse topics as risk forecasting techniques, reliability measures, the impact of political risk on asset prices and sovereign debt workouts. Also featured is a special roundtable discussion by some of the world’s leading voices in the field on the future of political risk, who combine to address some of the challenges presented by globalization and COVID-19. For more information and to reserve a copy of the book, please contact Louis Carroll, PRS’ Director of Business Development, at email@example.com.
We continue our discussions with the data analytics departments from several of our academic clients in the US, with the aim of providing the most comprehensive, AI-generated and back-tested data on geopolitical risk available anywhere. The effort pairs our internal work under the rubric of the PRS’ Artificial Intelligence Initiative, which we will soon make available to select clients. Stay tuned for more details.
PRS Private Client Advantage, which offers new and existing clients a greater diversity of data offerings and regular updates, consultations, bundled products, and more, is – judging from client demand – even more essential. Contact us for details. With the fluidity of the ratings, this benefit for clients is especially important.
Our ICRG political risk scoring changes were very robust in December, affecting some 70 countries (50% of our country universe) and over 90 individual risk metrics!!
Thanks for your continued support, and please contact us if we can be of any assistance.
Back to Insights