Note: Today is the first in a series of posts that
detail Eurasia Group's Top Risks
the onset of the financial crisis in 2008, investors and companies have focused
mainly on risks in developed world markets. But as conditions in the U.S. and
Europe continue to improve in 2013, the most worrisome risks will again come
from emerging market countries. These countries are fundamentally less stable
than their developed world counterparts, and some of their governments used a
period of favorable commodities prices and the benefits from earlier reform to
avoid the tough choices needed to reach the next stage of their political and
of these emerging market nations face more difficult challenges than others,
and much depends on the degree of political capital each leader will have in
order to make unpopular but necessary changes. These countries can be divided
into three broad categories according to the complexity and immediacy of the
risks they face and the longer-term upside they offer.
first category includes the best bets:
Mexico: Newly elected President Enrique Peña Nieto is one of the
few leaders of an emerging market country both willing and able to advance
structural economic reforms.
Turkey: Despite unrest near its borders and elite infighting over
constitutional change, Turkey's institutions and balance of power support a
stable and dynamic economy.
South Korea: Seoul has demonstrated an ability to
diversify its trade partnerships, has concluded free trade agreements with the
U.S., the EU, and ASEAN, and is negotiating similar deals with Canada, Indonesia,
second category of emerging market economies are at risk of considerable
India: Regardless of significant long-term structural and
demographic advantages, dysfunctional politics and upcoming elections will
probably paralyze reform efforts.
Indonesia: President Susilo Bambang Yudhoyono is a
lame duck, and the economic reform process is stalling.
Thailand: Elites in Bangkok continue to fight over
unresolved issues, generating unrest.
South Africa: Political leadership has deteriorated
steadily since Nelson Mandela's 1999 retirement, and populist pressures are
China: The government's continued focus on social welfare,
infrastructure, and industrial policy spending in 2013 will help bolster
near-term growth. But geopolitical tensions and more competitive Chinese firms
will make it more difficult for foreign companies and investors to secure
there are the underperformers, those countries where risks will overshadow returns.
Russia: President Vladimir Putin retains a strong hold on power,
but he has lost significant support from upper- and middle-class Russians,
particularly in major urban areas. As a result, reliance on support from
conservative Russians and economic elites will likely reduce his willingness to
undertake needed reforms. Relations with both Europe and the U.S. are
Pakistan: Political risk could reach critical
levels due to a volatile election season.
Venezuela: Challenges to restore economic health
will probably suffer without the dynamic presence of the recently re-elected,
but seriously ill, President Hugo Chavez.
Argentina: Policymaking challenges are widespread
due to populist pressure.
Friday, we'll profile Risk #2: China vs Information.