NOMURA: 10 Issues That Should Keep You Up At Night

The grudge

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Recent reports of a possible strikes on Iran have driven up oil prices. The dismissal of Bo Xilai could signal a major change in emerging economic model for China.  And upcoming U.S. elections seem to have all new legislation on hold.Investors and markets react to political news from around the world.

Nomura’s senior political analyst Alastair Newton is out with his report¬†Issues Which Keep Me Awake At Night.

These are the 10 political risks that could rattle markets in 2012. Newton ranks the issues based on relevance to investors.

#10 Malaysia could have early elections this year

'The budget presented to parliament in October suggests to us that the government will call a general election in early 2012.'

Source: Nomura

#9 The frontrunner for the Mexican presidency may not be able to push through reforms

'The PRI's Enrique Peña Nieto is widely expected to win the 1 July presidential election; but his party seems unlikely to secure a majority in Congress and reform prospects therefore remain uncertain.'

Source: Nomura

#8 Expect political tension between Thailand's leadership and the country's elite

'Despite Yingluck Shinawatra's convincing election victory on 3 July 2011, we believe it is only a matter of time before significant differences erupt again between her party and its supporters, and the country's elite.'

Source: Nomura

#7 Political uncertainty ahead of Venezuela's presidential election is escalating

'In the run-up to October's presidential election, political uncertainty looks greater than it has for over a decade.'

Source: Nomura

#6 Pakistan's economy and security are deteriorating

'Security and the economy are continuing to deteriorate as the possibility of a terrorist attack in India emanating from Pakistan persists.'

Source: Nomura

#5 North Korea may lash out in April or December

'Continuing tensions could lead to more 'bad behaviour' by North Korea in the run-up to the 100th anniversary of Kim il-Sung's birth on 15 April and/or South Korea's 19 December presidential election.'

Source: Nomura

#4 China is unlikely to approve significant reforms before its leadership transition is completed in 2013

'In the meantime, we believe that an ideological debate will continue in Beijing, despite the recent dismissal of the leading proponent of the 'Chongqing model', Bo Xilai.

The outcome of this debate may be a key determinant in the make-up of the 5th generation leadership and the policies it pursues.'

Source: Nomura

'We believe that the publication on 20 March of the Republican Party's budget proposals has reinforced the difficulties involved in reaching cross-party agreement on a range of fiscal issues before the 6 November elections.

Failure to reach agreement by year-end would result in a significant fiscal 'hit' to the economy from 1 January 2013 with the Bush tax-cuts due to expire and the imposition of automatic spending cuts, plus the need to raise the debt ceiling.

Meanwhile, we see a non-negligible possibility that Congress could pass anti-China legislation as the US election nears, even though the Brown-Schumer bill approved by the Senate last year is bogged down in the House.'

Source: Nomura

#2 Despite the positive impact of the LTRO and a second bailout package for Greece, Europe faces significant risks especially in Spain

'...Major challenges remain, notably …In Spain, the government looks set to face escalating protests against measures consistent with meeting this year's (revised) deficit target of 5.3%; and Greece faces political uncertainty around the outcome of a general election expected in late April/early May.'

Source: Nomura

#1 Political uncertainty across the Mideast and North Africa but especially Iraq and Iran are likely to keep oil prices high

'Even though the Iranians look set to return to the negotiating table next month, we see little prospect of Tehran being deflected from its nuclear ambitions. We therefore expect tensions to be sustained and possibly to escalate in the coming weeks.

Furthermore, a sharp deterioration in governance and the security situation in Iraq since the US troop withdrawal could endanger its output of up to 3.4mbpd. …Overall, we expect perceived political risk (including around Nigeria and Venezuela) to continue to exert upward pressure on the oil price in 2012 despite recent efforts by Saudi Arabia in particular to calm markets.'

Source: Nomura

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