Geopolitical risk is on the rise. In fact, we are at the highest level since the beginning of the Russian invasion of Ukraine. The BGRI focuses on brokerage and news reports concerning geopolitical risks and the news is filled with uncertainty concerning the reaction to US policy and President Trump. The players of geopolitical risk may be following the same policies but the uncertainty concerns what will be the response of the US. The risk is focused on new responses which mean new reactions. Markets abhor uncertainty, so we are seeing the results of this uncertainty.
Are these risks priced in the market? I hate this question because it is so open-ended. What does it mean that stock market has priced a major cyberattack? if there is a 5% chance over the next year, what does that mean in terms of a risk premium. How do we price a terrorist attack? That said, it is the responsibility of global macro investors to think about this pricing effect and think about how it can be modeled. I may not agree with the risk map, but it can be viewed as a point of departure for deeper discussion and modeling.
No comments:
Post a Comment