A new era of political risk

What do Republican presidential nominee candidate Donald Trump, North Korean dictator Kim Jong-un and Irish Taoiseach Enda Kenny have in common? Individually not much, but together they highlight a threat to the stability that allows the private debt market to thrive.

Love him or hate him (and he only seems to inspire extremes), Donald Trump proved this week that his US presidential campaign has legs. 

It’s not an issue that directly affects private debt. But if Trump ultimately prevails and goes on to implement the policies he has advocated in stump speeches, the effect on global politics and financial markets could be detrimental to the asset class.

That’s not the only geopolitical risk for the industry to fret over, either. 

On the other side of the world, this week Kim Jong-un fired rockets in response to new UN sanctions. The risks of a nuclear-armed autocracy have long been flagged by South Korea and Japan, but the North Korean dictator’s need to flex his muscles has reminded the rest of the world of the danger, too. 

Looking to the Middle East and North Africa, the dislodging of several long-established regimes and the ongoing battle with Isis are the biggest drivers behind the huge numbers of migrants entering Europe. An estimated one in every 122 people in the world is considered displaced from their home by the UN refugee agency, UNHCR. This movement of people will have dramatic impacts on supply and demand dynamics for residential real estate, delegates at the recent Real Estate Capital Forum in Frankfurt heard. And that won’t be the limit to the financial impact of this mass movement of people.

In Europe, the UK is contemplating an exit from the European Union. The vote is scheduled for 23 June and looks set to be an extremely tight contest between the ‘in and ‘out’ advocates. Other recent European polls have shown that electorates across the continent are divided. In both Spain’s December election and last week’s Irish poll, the ruling centre-right parties failed to win a large enough majority to re-form their governments. 

While North Korean missiles and European elections are not comparable as regards threat level, a directionless Europe with far-right and nationalistic politics on the rise, is not conducive to the kind of stability under which private debt will thrive. 

And these are far from the only examples of global political risks that could destabilise financial markets.
Private debt has benefited from the rise of a new financial order post-crisis. A few political wrong turns and the benign environment that has incubated massive growth in the asset class could vanish.