Geopolitics: Examining The Top 5 Risks

Geopolitics: Examining The Top 5 Risks

Summary Recent developments have caused markets to focus on geopolitical risk, with more to come in the month of May. Geopolitical threats include renewed trade tensions, North Korean missile launches, Iran abandoning the nuclear deal, instability in Venezuela, and the European parliamentary elections. With global stocks vulnerable to a pullback, it is fortunate for investors that the trend in the degree to which the world’s stock markets move in sync with each other has been trending lower – enhancing the potential risk-reducing benefits of diversification. By Jeffrey Kleintop Geopolitical risk has recently returned to the markets in the following five ways: Renewed trade tensions between the U.S. and China and the looming possibility of auto tariffs impacting Europe and Japan. New missile launches by North Korea. The U.S. intensifying sanctions on Iran and deploying a carrier strike group to the Middle East. An increasingly unstable situation in Venezuela. The fragmentation that may result from the upcoming European parliamentary elections. There are key geopolitical events on the calendar in the weeks ahead. (Source: Charles Schwab, various governmental organizations.) We will briefly examine each of these five geopolitical risks and their potential market impacts. 1(a). U.S.-China tariffs On May 10, the U.S. raised tariffs on $200 billion of Chinese-made goods (with additional tariffs on about $325 billion potentially in the pipeline for later this summer). China pledged to respond in kind and has already announced tariff hikes on $60 billion of U.S. imports. Despite the delay and tariff increase, it is […]

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