These Are The Top Geopolitical Risks According To The World's Largest Asset Manager

Tyler Durden's picture

Like many others, the world's largest money manager with $5.9 trillion in (ETF) investments, BlackRock, is not too worried about a market which no matter what, promptly rebounds from any and every selloff, and seems to close at all time highs day after day as if by magic. To be sure, BlackRock's employees are delighted: the less the volatility, and the higher the S&P goes, the more likely retail investors are to hand over their cash to BlackRock. So far so good. Still, not even Blackrock can state that after looking at this chart, which unveils unprecedented economic policy uncertainty at a time when equity uncertainty has never been lower...

... that everything is ok.

And it doesn't: in a blog post by BlackRock's Isabelle Mateos y Lago, Blackrock's chief multi-asset strategist writes that while markets may be a sea of calm, geopolitics are anything but. As a result, the world's biggest ETF administrator has its eyes on 10 geopolitical risks and is tracking their likelihood and potential market impact, as it wrote recently in the firm's Global Investment Outlook Q4 2017.

The "world of risk" map below is a quick snapshot of all

Among the Top risks tracked by Blackrock are:

  • North American trade negotiations
  • Russia-NATO conflict
  • South China Sea conflict
  • US-China tensions
  • Escalations in Syria and Iraq
  • North Korea conflict
  • Fragmentation in Europe
  • Gulf conflicts

Of the risks listed above, which are the ones BlackRock is most worried about? According to Mateos y Lago, the top three right now: North American trade negotiations, a North Korea conflict and U.S.-China tensions, with the second and third particularly interrelated.

The details:

North American trade negotiations

The fourth round of North American Free Trade Agreement (NAFTA) renegotiations ended this week, with Mexico and Canada rejecting what they view as harsh U.S. proposals. Still, news reports did suggest apparent progress on less contentious parts of the agreement, and the negotiations aren’t over. The next round of talks are scheduled to take place in Mexico next month.

Our base case is that successful negotiations will be completed in early 2018. However, our hopes for this outcome have recently diminished given tough positions from U.S. negotiators and threatening rhetoric from U.S. President Donald Trump that has resulted in greater uncertainty. Market risks are biased to the downside given that a good outcome is priced in, in both Canadian and Mexican markets.

* * *

North Korea

We view North Korea’s missile and nuclear weapons program as a major threat to regional stability, U.S. security and nuclear non-proliferation. The possibility of armed conflict has risen, we believe, given North Korea’s missile launches over Japan, a nuclear test and an intense war of words. This has raised the chance of misstep or miscalculation, and we could see limited action such as the shooting down of missiles.

Yet we currently see a low probability of all-out war; the costs are too high on all sides. Instead, we expect the U.S. to intensify its “peaceful pressure” campaign, evident in imposing unilateral sanctions and leaning hard on China to participate. We see the crisis straining U.S.-China relations just as economic tensions are rising.

* * *

Deteriorating U.S.-China relations

We see frictions between the U.S. and China heating up over time. The countries risk falling into the “Thucydides Trap,” a term coined by Harvard scholar Graham Allison to describe clashes between rising powers and established ones. We see trade and market access disputes straining an increasingly competitive U.S.-China relationship in the long run, and believe markets have yet to factor in this gradual deterioration.

In the short term, tensions could rise if Chinese President Xi Jinping pursues an even more nationalistic agenda in the wake of the National People’s Congress. Economic tit for tats could lead to an erosion of relations—and have sector-specific effects.

U.S. military action against North Korea and/or an accidental clash in the South China Sea would deal a blow to the relationship, in our view, and hurt risk assets. But our base case is that the U.S. and China avoid these land mines in the short term, and try to use President Trump’s upcoming visit to emphasize cooperation.

Taking the above in context, what is BlackRocks recommendation for portfolios? The good news, according to the author, is that most geopolitical shocks have short-lived market impacts, except in regions directly affected. For those who wish to hedge, Blackrock recommends government bonds as useful diversifiers against volatility and equity market selloffs sparked by such shocks.

* * *

Meanwhile, in a separate observation, Rick Rieder, Blackrock's global fixed income CIO pointed out another recurring, and ominous trend: "major central banks flooded global financial system with near $10T in liquidity since 2008, but now we’re beginning to unwind"

... which leads to the question: "will others (foreign-exchange reserves, banks) step in to provide liquidity, so the transition doesn’t derail growth?"

The answer: it all depends on China.

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yomutti2's picture

Well, it's nice to see that at least some of them don't include us.


major major major major's picture

Pretty much all China and Russia's fault...

Åristotle's picture

But all those places listed are run by "banks." Surely, the first cause ought to be discovered.

loebster's picture

There's no REAL tension with Russia. It's all fabricated to placate (((the usual suspects))).

uhland62's picture

It is always Russia's and Putin's fault. You should have learned that by now.


If they then gang up with the neighbours - that'll be a party that the weapons traders will love even though we do not fully know where they drop their bombs. NATO countries most likely because they are the most expendable. With some goodwill, that could be avoided, but goodwill is just a word. 

LetThemEatRand's picture

The really funny thing is that people still get paid to spend their days doing this kind of analysis.  I guess the bankers need to keep up appearances.

adolphz's picture

He's got you fooled. 

Giant Meteor's picture

Nobody move or the nigger gets it!

Apologies, I just had too ..


buttmint's picture

NK does an EMP or worse on USA---this is not noted in the graph

shovelhead's picture

Our recommendation? Easy.


adolphz's picture

More eeconomic issue of risk than countable.  Does not change the fact that while most ZH articles focus on bearish imagination the trading market calls at Shepwave keep making money. Again and again. Saw everyone on hedge trying to figure out why the Down filled the gap on Thursday.  SHEPWAVE NAILED IT!!

Irvingm's picture

Ummmmm, their gold trades have been spot on for decades. They are the only analyst who leaves over ten years of market analysis and trading calls accessible to readers. 

But ShepWave is capable is being just as rigged as any.

adolphz's picture

Yes true.  They oil trades areally good   lately  it has been not easy I am sure  that is why they have been doing outsid3 consulting.   First time I ever saw them do that.

Giant Meteor's picture

Fine, but I'm still waiting for the retired non de plumb green beret guy to weigh in ..

Bloody hell, can we at least get Paul Craig Roberts on the line ..

David Stckman maybe?

Kunsler even ?

Lost in translation's picture

I’m waiting for Michael Snyder to preach to us about our iniquities, such as being sexually attracted to your spouse, which is “the sin of lust.”

So many charlatans, so little time, huh?

DoctorFix's picture

Please for the love of God not the RGB! There's no escaping the Spanish Inquisition!

Giant Meteor's picture

Awww Grampa, quit being so grumpy!

Here, I have something that'll cheer you up ..

Eat, drink and make merry, for tomorrow we dine in Valhalla!


Smerf's picture
According To The World's Largest Asshat Manager
buttmint's picture

...fluff piece by "PINHEADS R US."


cookies anyone's picture

there is one recurring flag in all the world conflicts, guess which...

onmail1's picture

In all cases

west will be the loser

Pirates , finally end up in


xrxs's picture

If Venezuela starts getting support/influence from abroad, that could spell trouble.

Cozy Vanilla Sugar's picture

You could draw a similar map for any day in modern history. We are chimps on teams, fighting globally for advantage in the division of labor.



shadow54's picture

NAFTA as the number one risk? Do these people have their heads screwed on backwards?

Rebelrebel7's picture

There are geopolitical risks, but from my perspective, they were not included in the Blackrock letter:

1.) Central banking policy relies on a self-destructive system.

2.) Government's throughout the world have lost all credibility. 

3.) Central banks, their member banks,  and multinational corporations throughout the world have lost all credibility. 

4.) Perpetual war is unsustainable and unforgivable!

5.) The ensuing demise of the Petro dollar.

6.) The replacement of the Petro dollar with an even more contemptuous currency of the yuan linked to the most volatile investment, oil futures contracts , combined with the most rare substance, gold.

7.) It's the heroin stupid!

Dennis Mack Gyvner's picture

TYLER, THAT'S IT ?? The worth of some pieces of paper (ETF's) ?

As Rodney Dangerfield once said,

"If you own anything other than real estate, you own a popcorn fart"

oncemore's picture

The list of geopolitical risks should start with:
- senate
- congress