A multi-asset approach to political risk

A multi-asset approach to political risk

As macro-political risks in emerging markets have increased since the 2008 – 2009 global financial crisis, Nikko Asset Management analyses the growing importance of top-down analysis in managing emerging market portfolios.

Given the increasing frequency and intensity of political – economic crises, a more systematic method of measuring political risk and evaluating its impact on market prices is required for emerging markets. According to Nikko Asset Management, a central thesis of investing in these markets, given their volatility and dispersion, is that there are better opportunities for risk-adjusted returns through a multi-asset approach.

Nikko Asset Management advocates a ‘three pillar’ approach to emerging markets: investing in a broader range of asset classes; top-down, dynamic management of risk allocation to these countries / asset classes; and explicitly incorporating a systematic measure of political risk and its impact on emerging market assets.

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