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The return of political risk

Certainly, it's a reminder that we can't measure risk merely by looking at historic volatility. By this measure, utilities are among the safest stocks on the market. But historic volatility tells us nothing about the likelihood of serious price controls, windfall taxes or nationalisation.

Nor should we take much comfort from the possibility that policies to shift income from profits to real wages could increase aggregate demand and economic activity because the propensity to spend from wages is higher than that to spend from profits. This is a probability rather than a certainty, and equity investors might reasonably fear - especially in the first instance - that lower profit margins won't be recouped through higher demand.

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