Political Risk Moves Markets in Different Ways

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You would think a disruptive mass protest would negatively affect a country’s market and asset prices. But recent political unrest around the globe suggests this isn’t necessarily true. 

Markets are quickly shrugging off political risk associated with both peaceful and violent unrest around the world, underscoring how hard it is for global macro strategists to know when civil disruptions will rattle investor confidence.   

Predata tracks digital activity and engagement in every country to forecast geopolitical risk and volatility and the effects on financial markets.

In these examples, we track several indicators that presage when markets will show low volatility despite high macro risk.

French Civil Protest is Quite Civil

For example, in France, the risk of demonstrations against President Macron's reform agenda threatens to immediately shock markets. But Predata signals that measure the volatility of French civil society conversation online show that if history is any guide, a downturn will be short-lived. Over the past seven years, the CAC 40 index has corrected itself within 10 days after spikes in the signals that accompany waves of demonstrations and strikes.

No Quick Turkish Turnaround

In Turkey, our signals reveal which of the country’s protests garner more attention and are more likely to have a real political impact. Hundreds of thousands of people marched in July to protest President Erdogan on the one-year anniversary of the failed coup attempt against him. Despite the size of the demonstration, the rally did not generate nearly as much society-wide attention and engagement as the July 2016 attempted coup or the May 2017 constitutional referendum vote. At this point, the opposition protests pose little chance of kindling a groundswell that would threaten Erdogan’s rule.

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Shedding Light on an Opaque Military

In Venezuela, our signals have opened a lens into the historically opaque Venezuelan military. These signals presage shakeups in the armed forces that can profoundly affect the course of Venezuela’s political crisis and its impact on global markets.

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Brazil’s Currency Shows Sensitivity

In Brazil, demonstrations can lead the currency to depreciate even when the stock market looks solid. Markets reacted positively to the sentencing of former President Lula to prison for corruption, yet demonstrations against him kept going. A Predata signal showed that in the days following spikes in civil society unrest, the BRL/USD tended to fall

Put Volatility to Work for You

Predata tracks digital activity and engagement in every country to forecast geopolitical risk and volatility and the effects on financial markets. (You can find our political volatility index, Predata PVIX, on the Bloomberg Terminal.)

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