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Economic Insight: Politics and markets will reconnect

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Economic Insight: Politics and markets will reconnect

Most indicators of both international and domestic political risk have been on an upward trend for several years. In addition to this undisputable trend, the world has recently witnessed a series of large, often negative and destabilizing political events: war in Ukraine, Syria and Yemen, the migration crisis, Brexit, the Turkish coup, the election of Donald Trump, and tensions with North Korea, to name the most unsettling.

Many political analysts are warning that the world is now in a process of systemic political change, whereby both the political consensus underlying western democracies and the post-war global order are fraying. If this is so, the world will not return to the extraordinary political stability witnessed in the decades since the end of the Cold War.

Historically, equity markets have recovered from political shocks, even large ones like the Iraq war and 9/11, within a few months. In recent times, however, we have measured political market downturns in hours, if they happened at all. Several stock indices around the world reached record highs in the first half of 2017.

Source : Allianz

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