Saturday, November 15, 2014

15/11/2014: Emerging Markets Rot Drives Russian Economic Uncertainty


Some interesting data from the Policy Uncertainty Index for Russia (see http://www.policyuncertainty.com/russia_monthly.html). I traced out the main news markers over the period covered by the index (click on the chart to enlarge):


Note: higher values of Index, greater attention to the domestic economic and economic policy uncertainty in the media.

There is a clear pattern of rising policy uncertainty from, roughly speaking, early 2008, with both geopolitical risks (Georgia conflict) and economic risks (the 2009 recession) as well as internal political risks (2012 elections) all coincident with amplification in uncertainty. Ukraine crisis period is clearly only comparable in uncertainty with the last Yeltsin elections (which almost lost to the Communist Party candidate).

Volatility in uncertainty has also been on the rising trend, since, roughly, 2009 (note: the chart below is plotting 24mo MA):


However, it is worth correcting in the above data for the general global changes, not just Russia-own trends. To do so, let's take a look at Russia's Policy Uncertainty Index relative to the average of the same indices for China and India:


Notably, Russia's relative uncertainty has peaked around April-May 2014 and then subsided despite the fact that Ukraine conflict remains active. This suggests that post-May 2014, the acceleration in the rising trend in Russian economic and policy uncertainty is driven more by the general rot setting in in the Emerging Markets, and less by the geopolitical crisis.

Here is a chart plotting Policy Uncertainty Indices for the U.S., Russia, China and India:


This further confirms the above proposition: China is now showing levels of policy uncertainty on par with those in Russia. Geopolitics take a back seat to economics of the Emerging Markets slowdown.
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