Does Brexit and the rise of anti-establishment parties across Europe and the US mean political risk is on the rise? Sebastian Cheek finds out.
“If a eurozone country was to leave the EU, that would be massively significant for the whole global economy and would be of an order of magnitude more serious.”
Rupert Watson, Mercer
It would be no exaggeration to say the UK’s vote to leave the European Union (EU) on 23 June caused outright chaos across financial markets around the world. Investors hit the panic button as the realisation hit home that the UK had done the unthinkable and decided to go it alone.
The immediate aftermath was effectively summed up in a tweet by Matthew Goodwin, a professor of politics at the University of Kent, who quoted an FT journalist as saying: “It’s a rather strange day. The Prime Minister resigning is only our third most important story.”
Indeed, strangeness and uncertainty continued as one resignation followed another in the ‘leave’ camp. Theresa May’s succession of David Cameron as Prime Minister on 12 July did little to clarify the future direction of the UK, with May claiming Brexit would go ahead, but Article 50 would not be triggered until next year.
With big elections in France, Germany and possibly Italy and The Netherlands next year, not to mention the controversial US presidential race and an attempted coup in Turkey this year, the political picture across the globe remains uncertain. But what is clear is Britain’s decision to leave the EU has flipped the concept of political risk in financial markets on its head. Developed markets usually viewed safer than their developing counterparts are now fraught with political risk and investors need to question how this affects their portfolios.
