Eight geopolitical dangers looming in 2016
15 Dec 15
Geopolitical risks are inherently difficult to predict, but here are some of the key issues GAM investment experts are watching in 2016.
Oil prices and the Middle East
“I think the key risk globally is the impact of lower oil prices in the Middle East. Strains are already beginning to show, and if prices stay low, instability may well result. In particular, Saudi Arabia’s budget deficit is currently around 20% of GDP and the government has announced an aggressive debt issuance programme. Although, like most countries in the region it has ample reserves for a ‘rainy day,’ thanks to its sovereign wealth fund. Iran is less transparent, but onshore bond yields of 26% suggest that there is stress there. We highlight those two countries as between them they account for nearly 20% of global oil production.” – Paul McNamara, investment director, emerging market debt strategies
“A break-up of the state of Iraq is only a matter of time, in my view. While Kurds, Sunnis and the Shiite-led government in Baghdad are currently focusing on their fight against ISIS, secessionist forces are increasing in Kurdistan and the Sunni regions. Earlier this year, the Kurdish semi-autonomous region started exporting oil directly, bypassing the central government in Baghdad against its will. Kurdish leaders have also been lobbying in Washington for support of an independent state. A break-up of the country would probably create more instability and border disputes within Iraq, but also in the Kurdish territories in Turkey and Iran. With Iraq being one of the largest oil producers, such instability could have broad ramifications for the oil market. Oil prices currently do not include any geopolitical risk premium, and none of the other major oil-producing countries would have spare capacity to compensate for a substantial disruption in production.” – Roberto Cominotto, portfolio manager, energy strategies
Tags: GAM | Investment Strategy
