The Political Monitor monthly political risk outlook pack examines key political trends and events likely to shape markets in the month ahead. It includes political risk scores, indices and analysis of the interplay between politics & markets.

1. Poli%cal
risk
outlook
–
investor
pack
March
2014
www.politicalmonitor.com.au!

2. OUTLINE!
This presentation provides a summary of Political Monitor’s monthly Risk
Outlook report. It includes Political Monitor’s proprietary risk scores and indices
including the Australian Political Risk Index and the Asia Political Risk Index.!
!
To find out more about subscribing to the monthly pack please contact:!
!
Damian Karmelich !
!
!
!
Partner – Sydney !
!
!
!
p. 0407 772 548 !
!
!
!
e. karmelichd@politicalmonitor.com,au
!
!
!
!
!
!
!
!
!Steve Cusworth!
!Partner - Melbourne!
!p. 0417 178 697!
!e. cusworths@politicalmonitor.com.au !

3. CONTENTS!
•
Australian Political Risk Outlook …………………………………………………………… p. 4!
•
Asia Political Risk Outlook ………………………………………………………………….. p. 7!
•
Country in focus: Malaysia …… ………………….………..… ……...….……... p. 11!
•
Country in focus: Thailand ……………………..…………………..…….……… p. 12!
•
Country in focus: Vietnam ………………………..………………….……….….. p. 13!
•
Global issues ………………………………..………………………….….……………...…. p. 14!
•
Latest reports ……………………………………………………….……………...………… p. 18!
•
Appendix 1 – Australian Political Risk Index methodology…….……………...…………. p. 21!
•
Appendix 2 - Asia Political Risk Index methodology …………….……..…………......… p. 22!
•
Appendix 3 - Economic & investment impact of political and social instability …….….. p. 23!
!
!
!
!
!!
Political risk outlook!
3!

4. AUSTRALIAN
POLITICAL
RISK
OUTLOOK

5. AUSTRALIAN POLITICAL RISK INDEX – political uncertainty
hit a 4 week high in February with no sign of respite!
•
•
•
The
Abbo7
Government’s
response
to
the
crisis
at
Qantas
revealed
a
highly
poli%cal
Prime
Minister
willing
to
be
at
odds
with
his
Treasurer
if
it
advances
his
cause
against
the
Opposi%on.
This
has
introduced
a
great
deal
of
uncertainty
for
policy
making
generally
and
for
firms
that
are
heavily
regulated
by
government
specifically.
The
announcement
of
a
date
for
the
Senate
re-­‐
run
in
Western
Australia
put
the
spotlight
back
on
the
Government’s
challenges
in
the
Upper
House
and
reminded
markets
of
the
uncertainty
surrounding
the
carbon
&
mining
taxes
and
the
risk
of
a
double-­‐dissolu%on
elec%on.
Markets
are
preparing
for
the
elec%on
of
new
governments
in
both
South
Australia
&
Tasmania
but
with
li7le
understanding
of
the
priori%es
and
policies
of
either.
Australian
Poli7cal
Risk
Index
12
10
Poli%cal
Uncertainty
Score
•
8
6
4
2
0
Global
events
con%nue
to
weigh
on
domes%c
markets.
Political risk outlook!
5!

6. AUSTRALIAN POLITICAL RISK INDEX & ASX200 – political &
policy uncertainty continues to weight on key indices!
Australian
Poli7cal
Risk
Index
vs.
ASX
200
12
5500
5400
5300
8
5200
6
5100
4
ASX
200
Poli%cal
Uncertainty
Score
10
5000
2
4900
0
4800
PRI
ASX
200
Political risk outlook!
6!

7. ASIA
POLITICAL
RISK
OUTLOOK

8. ASIA
POLITICAL
RISK
INDEX
–
rising
youth
unemployment
is
emerging
as
a
poli%cal
risk
in
a
number
of
already
vola%le
markets
•
•
•
•
•
While
youth
unemployment
in
the
Asia
region
is
compara%vely
lower
than
the
rest
of
the
world
it
has
been
rising
in
recent
years
and
is
forecast
to
con%nue
doing
so
over
coming
years.
Youth
unemployment
(%)
13.5
The
rising
rate
of
youth
unemployment
is
becoming
a
significant
factor
in
a
number
of
important
economies
including
India,
Indonesia
and
the
Philippines.
In
Indonesia
the
youth
unemployment
rate
is
approaching
30%
providing
a
fer%le
hun%ng
ground
for
religious
extremists
and
is
a
key
contributor
to
the
gap
between
poten%al
and
actual
GDP.
In
India
the
youth
unemployment
rate
of
10.5%
is
rela%vely
low
but
it
obscures
the
raw
number
of
young
people
unemployed,
which
is
in
the
tens
of
millions.
When
combined
with
popula%ons
with
a
high
propor%on
of
people
under
the
age
of
30
the
risk
of
social
discord
begins
to
rise
pu[ng
pressure
on
economies.
12.5
11.5
10.5
9.5
8.5
7.5
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
World
East
Asia
South
Asia
Political risk outlook!
8!

9. ASIA
POLITICAL
RISK
INDEX
–
weakened
currencies
have
pushed
up
fuel
prices
increasing
the
risk
of
social
&
poli%cal
discord
Indonesia
–
the
price
of
Brent
crude
has
increased
nearly
26%
in
local
currency
terms
over
the
last
8
months.
Rising
prices
was
one
factor
in
the
Government’s
decision
to
wind
back
fuel
subsidies,
which
as
a
result
have
jumped
44%
since
the
middle
of
2013
causing
considerable
angst
on
the
ground.
India,
Malaysia,
Philippines
&
Thailand
–
have
all
experienced
price
rises
exceeding
10%
adding
to
poli%cal
pressures
in
each
of
those
countries.
Australia
&
Japan
–
these
developed
economies
have
also
experienced
price
rises
exceeding
10%.
In
the
case
of
Japan
the
jump
in
oil
and
gas
prices
and
the
resultant
deteriora%on
in
the
current
account
deficit
are
large
factors
in
Prime
Minister
Abe’s
proposals
to
turn
Japan’s
nuclear
reactors
back
on.
Percentage
increase
in
ICE
Brent
crude
(local
currency)
1
July
2013
-­‐
24
February
2014
30
25
20
15
10
5
0
%
increase
in
local
currency
%
ICE
Brent
Crude
Increase
Political risk outlook!
9!

10. ASIA
POLITICAL
RISK
INDEX
–
meanwhile
key
economies
are
forecast
to
experience
slower
or
stagnant
rates
of
growth
Indonesia
GDP
constant
prices
-­‐
%
change
(IMF)
China
GDP
constant
prices
–
%
change
(IMF)
10
7
9
6.5
8
6
7
5.5
6
5
2011
2012
2013
2014
2015
2016
2017
2018
2011
Malaysia
GDP
constant
price
-­‐
%
change
(IMF)
2012
2013
2014
2015
2016
2017
2018
Philippines
GDP
constant
prices
-­‐
%
change
(IMF)
6
8
5.5
6
5
4
4.5
2
4
0
2011
2012
2013
2014
2015
2016
2017
2018
2011
Political risk outlook!
2012
2013
2014
2015
2016
2017
2018
10!

11. COUNTRY
IN
FOCUS
–
Malaysia:
MODERATE
–
29/100
•
Malaysia
rates
as
a
rela%vely
good
risk
given
low
levels
of
corrup%on,
low
levels
of
poverty
and
rela%vely
low
levels
of
external
debt
as
a
propor%on
of
GNI.
•
Furthermore,
less
than
15%
of
household
finances
are
dedicated
to
food
limi%ng
the
impact
of
any
sudden
vola%lity
in
prices.
The
country
also
rates
well
on
food
security
indices.
•
3.4
3.35
3.3
3.25
3.2
3.15
3.1
3.05
3
However,
its
weakened
currency
has
added
to
the
price
of
fuel
(see
slide
9).
•
USD
:
MYR
The
primary
challenge
confron%ng
the
country
is
a
high
level
of
youth
unemployment
at
over
17%.
•
This
is
exacerbated
by
a
large
propor%on
of
the
total
popula%on
being
under
the
age
of
30.
At
nearly
30%
Malaysia
has
one
of
the
highest
propor%ons
of
young
people
in
the
region.
Malaysia
GDP
constant
price
-­‐
%
change
(IMF)
6
5.5
5
4.5
4
2011
Political risk outlook!
2012
2013
2014
2015
2016
2017
2018
11!

12. COUNTRY
IN
FOCUS
–
Thailand:
LOW
RISK–
13/100
•
Thailand
ranks
as
one
of
the
safest
countries
for
investors
on
the
Asia
Poli1cal
Risk
Index,
which
has
surprised
some
analysts
given
recent
events.
•
However,
the
country
has
a
number
of
underlying
strengths
the
first
of
which
is
a
track
record
of
not
allowing
poli%cal
crises
to
interfere
with
business
having
experienced
18
coups
since
becoming
a
cons%tu%onal
monarchy
in
the
1930s.
•
USD
:
THB
33.5
33
32.5
32
31.5
31
30.5
30
29.5
Most
importantly
for
the
country
is
a
very
low
level
of
youth
unemployment
and
rela%vely
low
levels
of
poverty.
The
fact
that
such
a
large
propor%on
of
the
country’s
youth
are
engaged
in
employment
limits
the
risk
of
poli%cal
discord
becoming
social
discord.
•
Thailand
also
has
rela%vely
high
levels
of
domes%c
investment
signaling
local
confidence
in
the
business
outlook.
•
Nonetheless,
recent
events
will
act
as
a
drag
on
Thailand’s
economy
but
the
longer
term
outlook
remains
robust.
Thailand
GDP
constant
prices
–
%
change
(IMF)
7.5
6.5
5.5
4.5
3.5
2.5
1.5
0.5
Political risk outlook!
2011
2012
2013
2014
2015
2016
2017
2018
12!

13. COUNTRY
IN
FOCUS
–
Vietnam:
VERY
HIGH
RISK
-­‐
61/100
•
Vietnam
is
experiencing
increasing
levels
of
social
discord.
•
While
the
country
has
rela%vely
low
levels
of
youth
unemployment
at
under
5%
it
does
have
rela%vely
high
levels
of
poverty
with
more
than
20%
of
the
popula%on
living
below
the
poverty
line.
It
has
also
a
large
propor%on
of
its
total
popula%on
under
the
age
of
30
at
25%.
•
USD
:
VND
21400
21300
21200
21100
21000
20900
20800
Vietnamese
households
dedicate
one
of
the
largest
shares
of
income
to
food
at
nearly
40%,
which
means
vola%lity
in
food
prices
has
a
significant
effect.
•
Poor
rankings
on
food
security
indices
and
an
absence
of
opportunity
for
ci%zens
to
express
grievances
adds
to
Vietnam’s
rela%vely
poor
ra%ng.
Vietnam
GDP
constant
prices
–
%
change
(IMF)
6.5
6
5.5
5
2011
Political risk outlook!
2012
2013
2014
2015
2016
2017
2018
13!

14. GLOBAL
ISSUES

15. CRISIS
IN
THE
UKRAINE
–
LOTS
OF
NOISE
BUT
LITTLE
ACTION
•
While
Europe
has
experienced
a
rela%vely
mild
winter
and
has
greater
stockpiles
than
during
the
Georgian
crisis
it
nonetheless
remains
the
case
that
a
cold
snap
or
extended
crisis
would
impact
Europe’s
energy
supply
chain.
3/03/2014
1/03/2014
27/02/2014
25/02/2014
23/02/2014
21/02/2014
19/02/2014
17/02/2014
15/02/2014
13/02/2014
Europe’s
response
in
par%cular
will
be
largely
guided
by
gas
supply
and
price
considera%ons
rather
than
concerns
about
the
Ukraine’s
sovereignty.
Russia
has
historically
supplied
the
con%nent
with
30%
of
its
total
gas
requirements.
11/02/2014
•
9/02/2014
The
strength
of
US
and
EU
calls
for
Pu%n
to
back
down
are
inversely
related
to
their
capacity
to
do
anything
about
it.
112
110
108
106
104
102
7/02/2014
•
ICE
Brent
crude
oil
futures
5/02/2014
Events
in
the
Ukraine
have
illustrated
the
primacy
of
geopoli%cs
as
Vladimir
Pu%n
dismisses
the
economic
costs
of
his
decision
to
effec%vely
annex
the
Crimea
in
favour
of
ensuring
control
of
the
region
and
access
to
the
Black
Sea.
3/02/2014
•
Natural
gas
futures
7
6
5
4
3
2
1
0
!
!
!
!
!!
Political risk outlook!
15!

16. THE
BATTLE
FOR
AFRICA
–
AUSTRALIAN
INVESTMENT
ON
AN
INCREASINGLY
RISKY
CONTINENT
•
Australia
has
considerable
exposure
to
Africa.
•
In
the
mining
sector
there
is
around
200
Australian
companies
involved
in
over
700
projects
across
37
African
countries.
•
One
in
20
Australian
companies
listed
on
the
Australian
Securi%es
Exchange
(ASX)
has
an
investment
in
Africa,
and
Africa
hosts
the
largest
number
of
Australian
mining
projects
in
any
region
outside
Australia,
at
around
40%
of
all
overseas
mining
projects.
•
Furthermore,
Australian
FDI
in
Africa
has
grown
75
percent
since
2006.
•
But
poli%cal
risks
are
on
the
rise
resul%ng
in
increasing
conflict
across
the
con%nent.
!
!
Political risk outlook!
16!

17. THE
BATTLE
FOR
AFRICA
–
AUSTRALIAN
INVESTMENT
ON
AN
INCREASINGLY
RISKY
CONTINENT
•
The
increase
in
conflict
and
the
risk
to
investors
is
a
consequence
of
four
broad
poli%cal
trends.
•
Extremism
–
the
return
of
extremist
groups
waging
war
and
engaging
in
terrorism
have
hit
at
the
heart
of
some
of
Africa’s
most
important
economies
including
Kenya
and
Nigeria.
•
Weak
borders
–
have
facilitated
the
easy
movement
of
extremist
groups
and
weapons.
The
a7ack
on
a
Kenyan
shopping
mall
in
2013
was
commi7ed
by
groups
based
in
Somalia.
•
Inter-­‐state
&
ethnic
conflict
–
is
retarding
the
growth
of
a
number
of
economies
including
oil
rich
South
Sudan.
•
Weak
governance
–
allows
rampant
corrup%on,
which
adds
to
social
discord
in
a
region
where
70%
of
the
popula%on
live
on
less
than
$2
per
day.
This
also
retards
the
growth
of
an
emerging
middle
class.
!
!
Political risk outlook!
17!

18. LATEST
REPORTS
!
!
!Australian
Poli7cal
Risk
Index
Weekly
updates
on
our
proprietary
index
tracking
poli%cal
and
policy
uncertainty
in
Australia.
US
set
to
shake
up
energy
markets?
Influential voices within America are calling for a relaxation of the !
!
!
!
!
!prohibition on crude oil exports in a move that could shake up global
!energy markets.!
China’s
oil
conundrum
China’s
emergence
as
the
world’s
largest
oil
importer
makes
it
dependent
upon
the
very
na%on
against
which
it
is
seeking
to
balance. !
!
!!
!
!
Political risk outlook!
18!

19. Detailed analysis on these and other political risks confronting investors can be found at
www.politicalmonitor.com.au!
!
To find out more contact:!
!
Damian
Karmelich
Partner
-­‐
Sydney
p.
0407
772
548
e.
karmelichd@poli%calmonitor.com,au
Steve
Cusworth
Partner
-­‐
Melbourne
p.
0417
178
697
e.
cusworths@poli%calmonitor.com.au!
!
About Political Monitor!
Political Monitor is a political risk research and advisory firm. Our analysis provides
insight into the implications of political risk for commercial valuations, asset selection,
investment decisions, strategic planning and operational decisions. !
!
Political risk outlook!
19!

20. DISCLAIMER & COPYRIGHT!
Disclaimer !
Information in this document is subject to change without notice and does not represent a commitment on the part of Seller.!
Seller does not warrant the accuracy, completeness or timeliness of any of the data and/or programs (“Information”) available within the report.
The Information is provided “as is” without warranty of any kind, express or implied, including, but not limited to, implied warranties of
merchantability, fitness for a particular purpose, title or non-infringement.!
In no event will Seller or its affiliates be liable to any party for any direct, indirect, special, consequential or other damages for any use of or
reliance upon the Information found within the report, or on any other reference documentation, including, without limitation, lost profits,
business interruption, loss of programs or other data, even if Seller is expressly advised of the possibility of such damages.!
The disclaimer is in addition to the specific terms and conditions that apply to the products or services offered by Seller.!
Copyright!
Copyright © Political Monitor Pty Ltd 2014. This document is copyright and contains confidential information that is the property of Seller.
Except for the purposes of executing or applying this report, no part of this document may be copied, stored in a retrieval system or divulged to
any other party without written permission. Such rights are reserved in all media.!
Intellectual property rights associated with the methodology applied in arriving at this document, including templates and models contained
there in, reside with Political Monitor Pty Ltd, excepting client information it contains that is demonstrably proprietary to the client or covered by
an agreement or contract defining it as such.!
No part of this report may be reproduced, transmitted, stored in a retrieval system, or translated into any language in any form by any means,
without the written permission of Political Monitor Pty Ltd.!
!
© Political Monitor Pty Ltd 2014. All Rights Reserved . ACN 166 162 572.
Political risk outlook!
20!

21. APPENDIX
1
-­‐
AUSTRALIAN
POLITICAL
RISK
INDEX
METHODOLOGY
The
Poli%cal
Monitor
Australian
Poli1cal
Risk
Index
is
a
dynamic
index
that
tracks
the
level
of
policy
uncertainty
in
Australia
relying
on
a
number
of
variables
including
market
vola%lity
and
the
dispersion
of
private
sector
economic
forecasts.
The
index
is
refreshed
daily
providing
an
up
to
date
gauge
of
poli%cal
and
policy
uncertainty.
!
!
!
!
!
Political risk outlook!
21!

22. APPENDIX
2
-­‐
ASIA
POLITICAL
RISK
INDEX
METHODOLOGY
The
Poli%cal
Monitor
Asia
Poli1cal
Risk
Index
tracks
nine
key
variables
that
go
to
the
core
of
poli%cal
risk
in
a
country.
The
variables
provide
an
indica%on
of
economic
and
social
inequality,
par%cularly
among
key
demographics,
and
the
risk
of
poli%cal
and
social
turmoil.
Those
variables
include
the
level
of
youth
unemployment,
corrup%on,
elas%city
of
demand
for
food,
the
percentage
of
the
popula%on
living
below
the
poverty
line,
and
the
propor%on
of
foreign
debt
to
Gross
Na%onal
Income
(GNI).
The
index
provides
a
rela%ve
score
for
each
country.
Accordingly,
a
low
(par%cularly
nega%ve)
raw
score
signals
lower
rela%ve
risk
while
a
high
raw
score
signals
higher
rela%ve
risk.
Scores
have
then
been
scaled
from
0
–
100.
A
score
of
50
signals
average
risk
rela%ve
to
other
countries.
!
!
!
Political risk outlook!
22!

23. APPENDIX
3
-­‐
ECONOMIC
&
INVESTMENT
IMPACT
OF
POLITICAL
&
SOCIAL
INSTABILITY
–
DOES
IT
MATTER?
•
Poli%cal
risk
is
the
second
ranked
concern
for
publicly
traded
companies
…
"Looking
ahead,
investors
con%nue
to
be
wary
about
the
effects
of
systemic
risk,
poli%cs
and
regula%on
on
the
world's
markets
and
how
they'll
perform.”
(BNY
Mellon,
Global
Trends
in
Investor
Rela1ons,
2014).
•
In
general
poli%cal
instability
results
in:
•
(a)
lower
economic
growth
(Aisen
&
Veiga,
2013)
•
(b)
reduced
private
sector
investment
(Alesina
&
PeroK)
•
(c)
increased
infla%on
levels
&
vola%lity
(Aisen
&
Veiga,
2008).
•
The
economic
effects
of
poli%cal
&
social
instability
remain
for
an
observable
period
of
2
–
3
years.
The
key
determinant
of
whether
the
effect
of
instability
ceases
at
that
point
is
the
speed
with
which
countries
implement
reforms
&
improve
governance
(Bernal-­‐Verdugo,
Furceri
&
Guillaume,
IMF
Working
Paper,
2013).
•
An
increase
in
economic
policy
uncertainty
foreshadows
a
decline
in
economic
growth
and
employment
in
the
following
months
(Baker,
Bloom
&
Davis,
EPU).
•
The
Interna%onal
Monetary
Fund
(IMF)
es%mates
the
economic
loss
to
Libya,
Egypt,
Tunisia,
Syria,
Yemen,
and
Bahrain
in
2011
at
USD$20.56
billion
as
a
result
of
poli%cal
and
social
conflict.
!
!
!
!
!!
Political risk outlook!
23!