The Time Has Come for Geopolitical Data to Shine

At TOGGLE, we partner with extraordinary data providers in order to help investors answer fundamental and impactful investing quandaries. In PRS we found the perfect partner to monitor political risks across all geographies and asset classes.

Geopolitical risk has become a permanent fixture of investing, made all the more important by the increase in correlation across regions during crisis times.

MSCI - “Have regional equity-market correlations risen?”

Source: www.msci.com

Even the most fundamental driven equity investors, focused primarily on valuations and company quality, cannot ignore the impact of geopolitical shocks. Geopolitical changes can affect regulatory regimes and fundamental drivers and completely undermine meticulously researched fundamental theses. In addition, risk management constraints can get triggered on the best constructed trades due to geopolitical upheaval.

“TIME Magazine’s analysis shows that the top global political risks are broad, hard to track, and full of unexpected entries. That’s why we decided to partner with PRS.”

Yet the impact of geopolitics has been muffled by the roaring bull market in US equities and global bonds. Every shock since the Global Financial Crisis has effectively turned into an opportunity to buy the dip. The post-crisis years have seen at least 20 major political events significantly impacting market prices (both globally and locally), which amounted to about two events annually.

Looking back it’s easy to remember the major events, such as the EU crisis, the Trump election, and the Brexit referendum. But a number of others let investors narrowly escape meaningful risks: the Crimea invasion of 2014, the French election in 2017, the US-North Korea nuclear standoff of 2017.

The chart below shows the Google Trends result for ‘nuclear war’. The initial spikes relate to the widespread worry and fear-mongering during the US-North Korea standoff. The most recent peak is the January 2020 briefly lived and soon forgotten “mini-panic”, which related to the drone-killing of Iran’s top military officer Qasem Soleimani by the US.

Google Trends - Results for “nuclear war”

“PRS data enables TOGGLE’s users to monitor the political situation of all countries in the world in real time, and spot in advance any signs of instability that have price implications for assets.”

In spite of varying attention in the media and public, the underlying risks remain active. Staying with the nuclear theme, the Bulletin of Atomic Scientists has been steadily advancing the hands of the nuclear clock since 1995:

Bulletin of Atomic Scientists - Snapshot, February 2020

Global risks that are simmering under the surface. TIME Magazine recently showcased some unexpected themes that might manifest in the next year or decade.

TIME Magazine - “The Top 10 Geopolitical Risks for the World in 2020”

1. Rigged!: Who Governs the US?
2. The Great Decoupling
3. US/China
4. Peak MNCs
5. India gets Modi-fied
6. Geopolitical Europe
7. Politics vs. Economics of Climate Change
8. Shia Crescendo
9. Discontent in Latin America
10. Turkey

From Turkey to Latin America, TIME’s analysis shows that the portfolio of global political risks is broad, hard to track and full of unexpected entries. That’s why we decided to partner with PRS.

TOGGLE - PRS Political Stability indicators and related articles

In the charts above, you can see Turkey’s political indicator

on the left, and TOGGLE’s Geopolitical news feed on the right. PRS data enables TOGGLE to monitor the political situation of all countries in the world in real time, and spot in advance any signs of instability that have asset price implications.

Importantly, the data have been back-tested for over 25 years for accuracy and relevance, and have been shown, “with ample evidence, that the data reflects the adverse effects of political risk on investment values across countries”. [1]

TOGGLE - PRS Political Stability article

TOGGLE -Geopolitics among Portfolio Alerts

With the introduction of Geopolitical data, TOGGLE furthers its goal to provide users with actionable data answering key investing questions and allow managers to see how they fit in their own portfolios.

By taking the guesswork out of questions like “I wonder what the deterioration of the political economy in the Philippines means for Asian currencies”, TOGGLE can alert its users about geopolitical impact for single securities and entire markets alike

ABOUT THE PRS GROUP

For over 40 years, The PRS Group (www.prsgroup.com) has been the world's leading quant-driven geopolitical and country risk forecasting and rating firm, with a clientele that includes the largest institutional investors and hedge funds, transnational companies, central banks and sovereign wealth funds, and leading research scientists.

Independently back-tested since the 1990s, cited as a “leading organization in investment risk analysis” by famed hedge fund investor, Jim Rogers, and distinguished as 'the most authoritative in the field' by leading academics in major trade and scholarly journals, PRS' risk-driven investment portfolios have produced returns of over 20% with less risk and less volatility. The firm has been profiled in Barron's, the WSJ, the Financial Times, Bloomberg, and CNBC.

PRS' data series are the longest and most comprehensive that can be found anywhere, and two proprietary methodologies for assessing risk are available: the International Country Risk Guide (ICRG), and Political Risk Services (PRS). The combined data of these two products can be found in CountryData Online (CDO). A number of products based on the two risk rating systems are offered.

In addition to providing risk data and forecasts, PRS also works with select governments globally with an aim to improving their overall business and investment climates, and with private firms involved in commercial litigation.

[1] Kwabene Kesse, “Sovereign Risk Channels and Exchange Rates,” Quarterly Journal of Finance and Accounting, (2017).