Geopolitical risk indicators rising: BlackRock

Though investors continue to capitalize on an expanding global economy, geopolitical risks abound.

In a report, BlackRock says that its geopolitical risk indicators are “bouncing off 11-month lows, indicating that many risks are back on the market’s radar.”

Read: Does your client understand these risks?

A current focus is Persian Gulf tensions, as the U.S. steps back from the deal intended to curb Iran’s nuclear ambitions, says the report.

Other risks that have heated up recently include North American trade risk and U.S.-China tensions. The firm sees reduced potential for a NAFTA deal, and expects U.S.-China relations to worsen, as “the U.S. clearly has China in its sights.”

However, the effect of geopolitical shocks on global markets is often short-lived, says BlackRock. The impact is more acute and long-lasting when the economic background is weak, according to the firm’s analysis. “We are not there today,” says the report, referring to ongoing global growth.

The firm sees U.S. Treasurys and gold providing a buffer against risk asset sell-offs triggered by geopolitical crises.

“These perceived safe havens also tend to rally ahead of ‘known unknowns’ such as elections, then lag after the event as fading uncertainty boosts risk assets,” says the report.

For full details and analyses of current geopolitical risks, see BlackRock’s report.

Read: Don’t bump up equity exposure—for now

Tracking with Twitter

BlackRock’s report on geopolitical risk is based on its new geopolitical risk dashboard, which highlights the top 10 risks and analyzes their potential market impacts.

Risk assessment will be updated on a monthly basis, and the firm’s top 10 risks will be weighted accordingly, says a BlackRock release.

Specifically, BlackRock’s dashboard gauges the market’s attention to geopolitical risks through text analysis of news articles and Twitter.

For sources, the firm uses the Thomson Reuters Broker Report and the Dow Jones Global Newswire databases, as well as the one-million most popular tweets each week from Twitter-verified accounts.

“The frequency of articles and tweets with words related to geopolitical risk, adjusted for whether the text reflects positive or negative sentiment, is calculated and assigned a score,” says a BlackRock release.

A heavier weight is assigned to brokerage reports than to the other data sources, says BlackRock in its report. “We want to measure the market’s attention to any particular risk, not the public’s.”

For each of the top 10 risks, the dashboard gives a scenario description, background, recent developments and catalysts. Monthly reports, as summarized above, will show how the dashboard that tracks the particular risk has evolved over time, and highlight assets that have historically been sensitive to a rise in the dashboard that captures the risk.

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