Letter:
Populism and Data Science

April 19, 2017

The French presidential election on 23 April is going to be a nail-biter. It is already captivating the media and putting markets on edge. There are four candidates with a legitimate chance of making it to the second round, and there is even a possibility that the two extreme candidates, Le Pen on the far right and Melenchon on the far left, both make it, although that is still a tail risk.

The polls have been showing centrist Macron and far right Le Pen in the lead into the first round. If Macron faces Le Pen in the second round on May 7, he is likely to win. However, even this outcome would be a departure from tradition, as Macron’s party was formed just 12 months ago. European politics have changed. We have been used to traditional centrist parties dominating the political landscape in all major European countries for decades. Government control shifted from left of center to right of center, but the general direction was mostly steady. Importantly, the stance towards the EU was in the main always supportive and cooperative.

But now the circumstances have changed. In 2017, the traditional Socialist and Republican party candidates in France are scraping together around just 25% of the vote. Importantly, the extreme candidates are outperforming the moderate candidates on both the left and the right for the first time in post-war French history. Hence, regardless of the specific outcome in France, a major shift is taking place with traditional centrist forces’ dominance evaporating.

This is a trend we are seeing globally. It is evident in the UK, the US, Turkey, and Hungary. Populism is on the rise. For investors this creates new risks (and opportunities). Accurately evaluating the probability of adverse political outcomes before they materialize will be increasingly important in the age of populism.

Meanwhile, there are new analytical tools available. Activity in social media can provide early warnings about political shifts; and bespoke polling is increasingly feasible (and getting cheaper, since most voters have smartphones).  With the political risk factor much more important for markets, having an edge from using data science is increasingly valuable.

Investors may not like the trend towards populism, but they cannot ignore it. They have to use state-of-the art technology and analysis to understand the implications.  At Exante Data, we are looking to focus and invest in data-based political risk assessment.  If you are interested in partnering around analysis and data in this area, let us know. We are convinced that political risk evaluation is increasingly important for macro strategy. Hence, it is crucial to be on the front-foot in this space.

Jens Nordvig
Founder and CEO
Exante Data LLC