Political risks: How do developed and emerging markets compare?

Regime change less of a threat

Political risk has moved sharply into focus in recent months with the UK voting to leave the European Union. Further referendums are planned in Italy and Hungary, while the US faces an unedifying contest between Donald Trump and Hillary Clinton.

Given this, many investors are now reconsidering issues of political risk and whether the traditional view of emerging markets (EMs) posing higher political risks still holds true.  While a higher level of political risk in developed markets (DMs) might seem counterintuitive, there are a number of long-term trends behind the current situation. As EM citizens have seen rising living standards over the past 20 years, DM populations have actually witnessed a stagnation over the past decade. Moreover, DMs are facing increasing problems with the generational distribution of wealth. In t...