Just as macroeconomic risks seem to have subsided, says Jeremy Warner in The Daily Telegraph, “geopolitical threats have come roaring back to take their place”. Chief among them is Israeli action against Iran.
The thinking goes that a close-run presidential election will make it harder for President Barack Obama to oppose Israeli action outright, so if Israel is indeed determined to strike, it may only have “a brief window of opportunity”.
That raises the spectre of an oil price spike, which could “blow the nascent recovery out of the water”. Riots in the Middle East and anti-Japanese protests in China “have added to the feeling of growing geopolitical fragility”.
Saker Nusseibeh of UK investment house Hermes Fund Managers warns of a US-China cold war and says Europe looks increasingly unstable. The growing wealth divide between and within countries could lead to war. This may seem “absurd”, Nusseibeh tells the FT, but “remember that for most of modern history these nations have gone to war over economics”.
The high youth unemployment in southern Europe is “one of the two main ingredients for civil war”, the other being poor harvests. Cash-strapped governments being tempted to seize people’s wealth is another risk.
The wider point is that whatever the specific threats, politics matter just as much as economic fundamentals. Investors have forgotten this amid the “unprecedented political stability” since the 1980s – but they are about to be reminded.