The new index, devised by Charles Stanley’s investment committee, measures the polling share of a country’s two main political parties and finds there is more political instability where the share dips below 65%, and that it becomes increasingly difficult to form a functioning government when it is lower than 50%.
Published on Thursday, the wealth manager’s first index found very strong stability in the US, with the Republican and Democrat parties monopolising 91% of polls, but a much riskier political environment in the UK where the support for the two main parties measured just 67%.
Canada was fairly stable, with its figure at 72%, but it was a different picture altogether for France where the rise of the far right Front National and other populist parties has pushed the main party’s poll share down to 49% – below the key 50% mark suggesting a tricky climate in store for any future party trying to form a government.
With a strong correlation between political risk, financial crises and volatile markets, it is important for investors to understand the political environment they are in, according to Charles Stanley’s chief global strategist John Redwood.
“Some might have a wry smile that the US emerges as the most stable politically from these figures. It is true that President Trump’s tweets are causing some media and market gyrations, but no-one can doubt the robustness of the US political system and the two party entrenchment that remains very strong. The fact that Mr Trump had to campaign as a Republican to win, and now has to govern through negotiation and agreement with the Republican majority in the House and Senate is a reminder of the strength of the two main US parties,” he said.
In France, Redwood said the biggest risk would be an electoral victory for far-right leader Marine Le Pen which would be “central to the EU’s fortunes and the Euro’s future”, but there are many personalities in the running.
He said: “The front runner in the polls for the first round is Mme Le Pen, who wishes to pull France out of the single currency and raise the whole question of France’s membership of the EU as currently constituted. The recent attacks on Mr Fillon, the centre right front runner who was forecast to beat Le Pen in the second round, have damaged his ratings badly. Current polls say Mr Macron, a young man who has never held elected office, should emerge in second place on the first round. The polls also show he will win easily in the run off against Le Pen.”
