U.S. Political Drama Tops Iran for Eurasia’s 2020 Market Risks
Prime Minister Narendra Modi enters a waiting room at Hyderabad House, in New Delhi. (Photographer: T. Narayan/Bloomberg)

U.S. Political Drama Tops Iran for Eurasia’s 2020 Market Risks

(Bloomberg) -- The most contentious U.S. presidential election in more than a century poses the biggest global risk of 2020, ushering in the potential for social instability, some level of political violence and questions about democracy, according to Eurasia Group President Ian Bremmer.

“Whether it’s Trump who wins or a Democrat who wins, the opponents are likely to say it’s rigged and unlikely to accept the outcome,” Bremmer said in a conference call from New York on Monday.

Still, Bremmer and Eurasia Chairman Cliff Kupchan said the so-called “axis of evil” that includes Iran, North Korea, Venezuela, and Syria isn’t likely to blow up; the U.S., Europe and Japan remain well-positioned to withstand a populist storm; and Boris Johnson’s big win gives the U.K. a break from the worst of Brexit turmoil.

Here’s a look at the firm’s top risks:

1. Rigged Election

U.S. institutions will be tested in unprecedented ways ahead of November’s presidential election. Just 53% of the American public say the vote will be fair, according to a September poll by Ipsos. If President Donald Trump wins amid credible charges of irregularities, the election process will become contested. And if he loses, the same scenario applies.

2. Technology Disruption

Competition between U.S. and Chinese technology companies will move beyond strategic areas such as semiconductors, cloud computing and 5G into broader economic activity. That may accelerate the shift in global value chains, while also disrupting investment levels and stock market listings for Chinese firms.

3. U.S.-China

There’s a trade war truce, yet little chance of a breakthrough. The U.S. will take tough measures against Beijing, including sanctions, technology controls and efforts to curb capital to Chinese companies. Meantime, China will retaliate by adding companies to its “unreliable entities” list. With Trump focused on his re-election, President Xi Jinping may test how hard the American president will be willing to push back on Hong Kong and Taiwan, risking an unexpected backlash.

4. Corporate Leaders

Globally, leaders of multinational companies will face a significantly more confrontational regulatory environment as governments manage slowing growth, widening inequality and security challenges. Regulating “big tech” is gaining favor in the U.S., where earnings projections are already under pressure, even under a president who has called for deregulation since taking office in 2017, with a focus on environmental rules.

READ: U.S., EU Enforcers Target Big Tech, Children’s Privacy in 2020

5. Tough Modi

Prime Minister Narendra Modi’s controversial social policies will result in intensified sectarian instability as well as foreign policy and economic setbacks, Eurasia said. His social agenda helped empower a key base of Hindu nationalists who oppose market opening and support economic nationalism, giving Modi less room to maneuver on an economic overhaul.

6. European Friction

Europe will push back against Washington and Beijing in an effort to break down barriers to military trade and technological development. The Trump administration will view this as an affront, especially considering few European nations have fulfilled their NATO promises on defense spending. That increases the risk of punitive tariffs on some of the continent’s more export-driven sectors such as automobiles and consumer goods.

7. Climate Change

Governments, corporate leadership and investors will face more pressure to align with environmental, sustainability and governance criteria, as well as increased costs, in 2020. Social movements and public unrest could also be more likely, especially as natural disasters become more common as the planet warms.

READ: BlackRock Calls ESG Investing ‘Must Have’ in Emerging Markets

8. Middle East

The recent escalation of tensions between the U.S. and Iran with the killing of Qassem Suleimani, while regionally destabilizing, is near the bottom of Eurasia’s list. While Iran may launch some smaller charges, “the attacks in response by the U.S. will be more commensurate and less disproportionate than Trump has tweeted,” Bremmer said.

9. Latin American Discontent

Public anger over sluggish growth, corruption and low-quality services will keep the risk of political instability high in Latin America. Argentina’s faces contentious negotiations with private creditors and the International Monetary Fund. In Ecuador, President Lenin Moreno will struggle to cut spending or raise additional revenue, putting pressure on the nation’s IMF program. Meantime, constitutional changes in Chile will hurt the economy by spurring higher spending, greater regulation and persistent uncertainty.

10. Turkish Provocations

President Recep Tayyip Erdogan may lash out in 2020 if he feels his popularity is slipping, further damaging the nation’s already ailing economy. U.S. Congressional sanctions will probably take effect in the first half of the year, putting pressure on the lira. The Turkish leader could enact counter-sanctions, provoking an escalation.

©2020 Bloomberg L.P.

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