For years, political risk has been a feature in European markets.
Lately, it feels like the volume of political noise has risen again. From Italy's fiscal squabbles to turmoil in the French streets, and of course the Brexit saga, which is probably the number one political headache today.
This backdrop requires a clear view of the long-term outlook,
but which also reflects major short-term political uncertainties.
The key is understanding how different political outcomes might affect the earnings of individual companies.
Looking at Brexit, it is important that portfolio-level risk analysis takes account of Brexit impacts on non-UK companies; you cannot judge a portfolio's exposure to Brexit just by looking at its weight in UK stocks.
Some of the companies that are potentially most exposed to Brexit may not be listed in the UK. Peugeot of France, for example, both makes cars in the UK and sells more of its production to UK consumers than its main European-listed rivals.
The resurgence of populism in Europe is challenging EU norms, from street protests in France to governments in Hungary, Poland and elsewhere.
As the May European Parliamentary elections approach, investors may become concerned that further gains by anti-establishment parties could undermine the stability of the EU's institutions.
In our view, these fears are overdone. The Italian government's decision to abide by eurozone fiscal rules suggests that populist rhetoric in the opposition often gives way to pragmatism in government. Polls continue to show the overriding political imperative to remain in the eurozone retains strong support.
Investors also need to be on the lookout for less well-publicised political risks that can impact companies' earnings.
In Spain, for example, recent tax changes introduced by the coalition government have impacted some banks, and efforts to pass a budget this year will be complicated by the politics of Catalan separatism.
Political risk is not a reason to avoid European equities. Europe today offers plenty of opportunities for stockpicking based on fundamental analysis.
However, a thoughtful overlay of political risk analysis is essential to complete the picture and reinforce investing conviction in these tense times.
Tawhid Ali is CIO of European equities at AllianceBernstein
• Opportunities exist for those utilising a bottom-up stockpicking approach
• A post-Brexit rebound could benefit stocks that have suffered due to recent risk aversion
• Brexit uncertainty is causing trade disruption and currency risk
• Populism is rife throughout Europe