Taking It To the Streets

What the New Vox Populi Risk Means for Politics, the Economy, and Markets

It seems like political risk is on the front page every day: crowds of protesters gathering, a rally calling for independence, a military coup, or scenes of civil conflict. Is there more unrest globally, or is 24/7 media coverage creating this perception? Is social media to blame? We think the answer to this question lies in better understanding what we call Vox Populi risk, a new variation of political risk which we have been tracking for the past two years. We define Vox Populi risk as shifting and more volatile public opinion that poses ongoing, fast-moving risks to the business and investment environment. In this report, Citi’s Political Analysis team documents a dramatic and measurable increase in the number of elections, mass protests and government collapses over the past three years — a 54% increase versus the previous decade — as well as a proliferation of new and fringe political parties, many of which are anti-establishment.

“And those people should not be listened to who keep saying the voice of the people is the voice of God, since the riotousness of the crowd is very close to madness.” — Alcuin to Charlemagne, 798 A.D.

Although there have been periods of Vox Populi risk throughout history, the difference today is that these events are happening in high income developed markets and middle income emerging markets, many of which have enjoyed a sustained period of growth and improvements in living standards — and are integrated into the global economy and financial system. The authors of the report that follows believe that Vox Populi risk is a structural change and that it will be a risk factor affecting both the investment and business environment for the foreseeable future.

What is causing this change? The authors believe the new Vox Populi is being fueled by growing perceptions of incoming inequality and anxiety about globalization, particularly amongst middle classes. In developed markets, this has resulted in new and alternative political parties which are having an impact on policy debate and increasing the formation of fragile coalitions and referendum risk. In emerging markets, there is a greater chance of street demonstrations, rebellions and sustained tensions that elections may fail to resolve. In some cases, local protests can become a geopolitical risk almost overnight. For petrostates, a fall in petroleum prices is leading to an outcry for improved governance and a more equitable distribution of income.

Thus far, companies and markets have been able to localize political risks thanks to continued low interest rates. Once rates rise, the impact of systemic political risks could grow. Greater fragmentation, disruption, and the geopolitical implications of more vocal, more quickly mobilized public opinion could start to weigh more heavily.

Applying the assumption that Vox Populi risk is unlikely to recede in the immediate future, this report explores its impact on the global political environment, including a host of upcoming elections in 2014 and 2015, the global recovery and economic outlook, financial markets and key sectors such as commodities.