Just as the issue of political risk seemed to be coming off the boil, the alleged chemical weapons attack in the Syrian town of Douma has turned up the heat once more. US, French and British forces have conducted air-strikes and more may follow.
This comes after cautious optimism that a number of political risk factors had been contained, including the possibility of a US-China trade war and fears of a nuclear exchange involving North Korea.
Other than those hardy souls who relish the chance to ride the waves of heightened market volatility, traders have an intense dislike of political risk, for the simple reason that it makes what is always an uncertain business considerably more so. Already, they face two types of risks which are now joined by a third.
Neither specific nor systematic risk is welcome to traders but at least both have their causes rooted in the world of finance and economics. Political risk arises as the by-product of actions and events with quite other causes. That makes it all the harder those in the markets to predict how it will play out in terms of asset prices.
A textbook example would be the stock-market crash and recession that followed the embargo on western states imposed by oil producers in the Middle East at the end of 1973 in the wake of the Arab-Israeli war in October. The global political economy took years to recover in terms of employment and living standards.
The ten years after the 1989 fall of the Berlin Wall saw political risk decline to historically low levels. Unsurprisingly, perhaps, stock markets around the world boomed. The bursting of the so-called dot-com bubble in 2000 and the September 2001 attacks on the United States clouded the picture but the risk to market trading still came, in the main, from economic and financial causes.
That changed four years ago, with China stepping up its claims not only to Taiwan but to other islands and sea lanes and the Russian annexation of Crimea. Perhaps more alarmingly, North Korea not only successfully detonated a nuclear weapon but boasted that it could deliver the warheads not only to its southern neighbour but to the US state of Hawaii.
Finally, in the wake of the financial crisis, the political environment of business changed markedly. The prospect, frequently realised, of ever-tighter regulations on the financial sector not only represented political risk for the institutions concerned but generated market risks as tough new rules forced banks to withdraw from their traditional role of market making in securities, removing an important shock absorber.
At the start of this year, any analysis with a heading such as “stock market predictions 2018” would have flagged up all these sources of risk. But more recently, the skies seemed to be clearing. President Trump’s tough talking appeared to have brought a more emollient approach from North Korea, while China seemed willing to make concessions to avoid a trade war.
Mr Trump also moved to relax some of the post-crisis regulations and his tax cuts, passed by legislators at the end of last year, appeared to be good news not only for US taxpayers but for the world economy in general.
Markets responded positively. America’s blue-chip Dow Jones Index, which had languished below 20,000 points between 2014 and 2017 and barely broke above 24,000 last year, topped 25,335 in early March. It was a similar story for Tokyo’s Nikkei 225 Index and the FTSE 100 Index in London.