It was voguish as the Cold War thawed a quarter of a century ago to talk of an “end of history” – with reference to Francis Fukuyama’s notion that liberal democracy had culturally triumphed – and assume, from the view of the world economy and markets, the smooth progress of free trade and globalisation, the efficient creation and transfer of prosperity, and peaceful co-existence across our planet. Twenty-five years later, Hong Kong citizens clash with the forces of a totalitarian-‘lite’ People’s Republic; the Kremlin – headed by a former KGB officer – fights a proxy conflict in Ukraine and menaces its former Soviet neighbours; fanaticism and civil war has benighted the Middle East; military dictatorship holds sway over 67 million Thais. History is yet to be shaded in the neutral tones of liberal democracy (the West has failed to ‘paint it beige’).
In 2014, these and other geopolitical risks seem more legion than at any point in the last quarter of a century. Moreover, political uncertainty is rife from elections across the larger emerging market economies (Brazil, India, Indonesia, South Africa and Turkey) to, nearer home, the referendum in Scotland and the question of the UK’s future in Europe. Perhaps, as Deutsche Bank suggests in a recent study on long-term assets, we are at a turning point as the influence of the world’s dominant power, America, wanes and, during such historical shifts, geopolitical tensions structurally increase. Although markets have remained sanguine despite these uncertainties, the cheery disposition looks to have paled in September. Markets faced with more frequent geopolitical stresses may have to price in a higher degree of risk.
This week’s bulletin also includes:
- Two years ago, the European Central Bank president Mario Draghi pledged to do “whatever it takes” to save the euro; over the coming months he will finally introduce an asset-purchase scheme.
- A stronger US economy and the Fed’s stimulus measures have given further momentum to US equities.
- UK supermarkets have continued to suffer as Sainsbury’s revealed a quarterly sales slump, while the Financial Conduct Authority is investigating Tesco’s £250 million accounting black hole.
- Mark Carney, the Bank of England’s governor, has suggested that the strength of the recovery is such that the UK could handle higher rates, although these would be gradual.