A range of political risks, including issues such as Russia sanctions through to election upsets, have been highlighted by Citigroup. The bank has asked investors how serious such developments could be, and how likely to occur.

At times like this it is sometimes necessary to realise that the world isn’t all going down the tubes. Although this is not an easy conclusion to make, given the headlines from Ukraine and other grim tales such as from Nigeria (kidnappings); China-Japan flareups, North Korea (weapons tests) and Venezuela (unrest).

These are all risks, but there is a need to recognise that not all developments will come to pass or be as severe as expected, argue political risk analysts at Citigroup. The bank asked 1,017 global macro investors about 11 potential political risks that it has tracked.

The wealth management industry, along with the investment world as a whole, has had to face up to the upswing in political risk and volatility in recent years after what was arguably a "holiday from history" during the 1990s. Ever since 9/11 and the financial crisis, political risk has been on the rise.

In the US, the bank notes that most investors see a potential fiscal “grand bargain” between the White House and Congress (75 per cent) as positive for markets, although such a bargain is not seen as highly probable. “A plurality [of investors] also rates a [Republican Party] takeover of Congress in November midterm elections (43 per cent) as positive. As mentioned, most investors (51 per cent) see a GOP takeover as likely,” the bank said.

In general, the bank says most global macro investors regard sanctions against Russia, and a Republican takeover of the US Congress as the most probable developments in politics this year. Citigroup polled global macro institutional investors.

“Investors also view as likely a breakdown in Iran nuclear talks, fringe victories in European elections, a snap Greek election, and China-Japan military tensions. Our survey suggests that despite apparent market indifference, investors do see political and security risks in Russia, China and Europe, raising the question of whether market participants have fully considered these geopolitical risks,” the bank said.

Many investors, the bank said, see risks in China, Europe, Iran and Greece. More than half of investors see two political developments as likely: Russia cross-border trade sanctions (60 per cent likely) and a GOP takeover of Congress (51 per cent).

“This suggests that these are not tail risks, but at the centre of investor concerns. Just under the 50 per cent line are an increase in China-Japan military tensions (49 per cent likely), European elections handing victories to radical parties (47 per cent likely), a breakdown in Iran nuclear talks (47 per cent), and a snap Greek election (43 per cent).

“Unlikely outcomes” in macro investors’ minds include Scottish independence (only 22 per cent likely), a hung parliament following India’s election (22 per cent), Catalan independence (15 per cent), or UK exit from the European Union (14 per cent). Majority of no less than 53 per cent of investors see each of these risks as negative for markets.