Inside PRS

Summer is upon us and many new and exciting happenings continue at The PRS Group!

NEW RISK REPORT

First up, we have all new and original political and country risk reports for June – a very busy month!

We’ll begin our coverage of the Americas with a report on Peru, where President Pedro Pablo Kuczynski’s failure to achieve some sort of political agreement with the main opposition FP, a right-wing party that controls an outright majority of seats in the Congress, has stalled the implementation of a reform agenda designed to revive an economy that has been weakened by a prolonged slump in global prices for metals.  The report will examine Kuczysnki’s political options as he seeks to overcome the legislative hurdle posed by the PF’s majority status, and discuss the fallout of a recent sandal for Peru’s investor reputation, and provide forecasts of what the political risks portend for economic performance and fiscal stability over the medium term.

In the Middle East and North Africa, will present a fully revised report on Iraq, where the political challenges faced by Prime Minister Haider al-Abadi figure to be compounded as parties and blocs gear up for local elections in September and a general election in April 2018.  The report will examine how the election cycle is likely to affect the balance of power among the main Shiite, Sunni, and Kurdish factions, which will have significant implications for the stability of the central government over the next five years.  In addition, PRS will also assess the government’s prospects for addressing numerous immediate challenges, and the longer-term task of devising a policy formula that enables Iraq to fully realize the economic potential of its massive hydrocarbons reserves in a manner that Shiites, Sunnis, and Kurds all judge to be fair.

For Asia, PRS has detailed reports on Indonesia, the Philippines, and Thailand, as well as an update to our report on South Korea that will examine the risk implications of the recent election of Moon Jae-in, the candidate of the liberal MPK, in an early vote necessitated by the impeachment and removal of Park Geun-hye.  We’ll also examine the government’s economic strategy, and provide forecasts for key macroeconomic variables that could affect the overall climate for investment and trade.

In Western Europe, our focus this month is on France, where centrist Emmanuel Macron’s victory in the recent presidential election points to the pursuit of a decidedly more inclusive, investor-friendly, and pro-EU agenda than those offered by his defeated far-right and far-left opponents.  Our report looks in detail at the implications of Macron’s reform proposals, not only for tax policy and job creation, but also for social peace, taking into account the historically strong influence of the country’s trade unions, an already high unemployment rate, and tensions caused by public hostility to austerity and the terrorist atrocities.  The analysis will also discuss the results of the legislative elections that will be held in mid-June, and will determine whether Macron can gain sufficient parliamentary backing for his platform in the likely event that his fledgling La République En Marche! bloc falls short of winning a majority of seats in the Parliament.  Our report goes will also assess whether Macron can deliver long-lasting solutions to the sovereign debt problem, and looks at the main macro-indicators, including GDP growth and inflation, to derive a complete picture of investor potential.

In sub-Saharan Africa, PRS will issue an update on Zimbabwe, which is edging closer toward elections to be held in 2018, at which the nonagenarian autocrat Robert Mugabe is officially slated to stand as the presidential candidate of the incumbent ZANU-PF.  Significantly, we’ll center our attention on internal party divisions, and the prospect of opposition forces removing Mugabe and his party from power in the light of a prospective cooperative alliance forming between Morgan Tsvangirai’s MDC and Joice Mujuru, a former vice president and at one time a leading candidate within ZANU-PF to succeed Mugabe.

ANTI-CORRUPTION/BUSINESS CLIMATE

The PRS Group began almost four decades ago – the result of decades of research between professors at the Maxwell School of Public Affairs (Syracuse University) and the CIA and US State Department. Since that time, PRS has provided political and country risk ratings and forecasts to the world’s largest institutional investors, multilateral organizations, central banks and sovereign wealth funds, transnational firms, and leading universities from all corners of the globe.

Indeed, our firm’s work is now more global that it has ever been, with an inflow of new clients coming now from outside the United States – notably, the Middle East and Eastern Europe!

In addition to our risk work, PRS is also one of a dozen firms worldwide that supply original corruption risk data to Transparency International (TI) for the group’s annual Corruption Perceptions Index.  We’ve been working with TI for two decades.

As such, we have recently began conducting bespoke work with a number of government anti-corruption agencies in Asia and the Middle East to develop a better understanding of their efforts to eradicate graft and thus improve their respective business and investment climates.  After site visits and meetings with relevant personnel, PRS will be showcasing each governments’ activities in this regard as a first step, and will eventually work them on an ongoing basis so that the positive momentum is sustained.

SPATIAL DATA ANALYSIS

 PRS has now embarked into the fields of remote sensing image processing, spatial data analysis, and geographic information system (GIS)!  For many of our clients – especially those that wish to have an up-close view of a range of events on the ground, from protests to troop and militia movements –  we can now capture those images and detect changes of those features from time series of satellite images. The time series images can also be used to check the impact of nature or human-made disasters. We can also look at the patterns shown on the image as an indicator of poverty and social turmoil. With day and evening images we can also look at the economic development level of a region, as well as those items of increasing importance to political risk levels, including air pollution, large-scale water and environmental contaminations.

PROPRIETARY COUNTRY RISK SOFTWARE

PRS’ new country risk software is complete! PRS2017 is an upgraded version of the proprietary database and data analysis software that is a vital tool in the formulation of our risk assessments.  The software provides our analysts with ready access to tens of thousands of data points that can be used to determine baseline levels of country risk, inform the calculation of regime probabilities and risk trajectories that are central components of the Coplin-O’Leary methodology, and alert analysts to changes in economic conditions that could impact risk levels in each of the 100 Political Risk Services (PRS) countries covered.

NEW PARTNERSHIPS AND EVENTS

Artificial Intelligence and Political Risk

We are extremely enthusiastic about our recent efforts to develop our longstanding data series into new products that will aid our clients in the investment and academic fields.

To this end, PRS is branching out into the field of artificial intelligence (AI) – a natural progression since our data has been used in a variety of ways by institutional investors and leading academics for decades.

In June, we visited Queen’s University and Innovation Park for discussions and to have a first-hand look at the facilities. We also had a series of very productive and encouraging meetings with faculty, researchers, and others in the fields of computer analytics, business and economics, and political science. Private sector representatives were also in attendance from the banking and insurance community in Toronto.  Everyone is enthusiastic and we’re all moving forward!  Look for more news on this front in the coming months.

As a natural corollary to our efforts with Queen’s is our continuing discussions with a range of AI firms in the Fintech space. Look for some major announcements on new partnerships in the Fall Issue of Inside PRS.

SkyBridge Alternative (SALT) Conference – Las Vegas

The idea that political risk should have a dispositive value to its users was underscored at this year’s SALT conference.  PRS was in attendance, and enjoyed a number of conversations with other attendees as they affected the increasing importance of artificial intelligence (AI), various forms of political risk and – the other major theme to develop from the gathering – the opportunities presented by select emerging markets.

Indeed, there was almost complete uniformity among the panel discussions when asked about the future of trading and asset management, such that the business of portfolio investment management – including risk hedging stratagems – would be increasingly quantified and increasingly delivered in the form of AI programs.

Of the panelists, the thoughts of several stand out:  Dr Ben Bernanke, the former Fed chairman, spoke about the similarities between former president Jimmy Carter and President Trump – both of whom are DC ‘outsiders,’ and the extent to which their policy goals suffered as a result of this standing. Sam Zell, chairman of Equity Group Investments, spoke about the dangers posed by the nuclear weapons ambitions of North Korea, and the problem with the US leaving the issue evidently un-addressed for decades. And Dr Mark Mobius, executive chairman of Templeton Emerging Markets Group, also spoke about North Korea, but added the need to engage in a ‘dialogue’ with the leader of the country.

Our corporate sponsorships and community involvement continues. Over the past year The PRS Group has sponsored the Charleston Jazz Orchestra, the Charleston Symphony Orchestra, the Renaissance Women of Charleston, and local professional groups designed to enhance science, technology, engineering and mathematics programs for Lowcountry children.

This year, we were proud to help sponsor Charleston’s annual Spoleto Festival. Approaching its 41st season, and recognized internationally as America’s premier arts gathering, the events include performances in opera; theater; dance; and chamber, symphonic, choral, and jazz music.

MEDIA INTERVIEWS AND SCIENTIFIC PUBLICATIONS

Clients know that PRS is consistently featured in the financial press and in trade publications.  Over the last month we have appeared several times in CityWire (www.citywire.com), a magazine catering to institutional investors for our views on political risk, emerging markets, and most recently, the volatile situation in Venezuela.

And, as is the case monthly, ICRG data is featured in the IMF’s Working Papers and Country Reports.  Most recently, the IMF investigated the effects of capital controls on the cost of international debt capital. Were they asymmetric across different types of restrictions? What is the role of political risk? The Fund used our ICRG composite scores (inter alia) to show that restrictions on capital inflows produce a substantial and economically meaningful increase in corporate bond spreads. (https://lnkd.in/e-3A4_f)

Similarly, the IMF posed the question: Do FX regimes matter? How does political risk data figure into the calculus? Again, using ICRG’s composite risk scores, in part, the researchers showed that emerging markets with fixed exchange rate regimes were more likely to experience financial vulnerabilities—faster domestic credit and house price growth, and increases in bank leverage—than those with relatively flexible regimes. (https://lnkd.in/ejsRdS8)

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 Since 1979, The PRS Group, Inc. has been a global leader in quant-based political and country risk ratings and forecasts. For more information on The PRS Group and its wide range of risk products, go to: www.prsgroup.com or contact us at (315) 431-0511.

 

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