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BlackRock Launches Geopolitical Risk Tool

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You only have to watch the stock markets drop hundreds of points in a few hours or a single day to know that something is wrong or maybe about to happen that’s unnerving investors. News reports online and on air can help explain the drama, as they did Tuesday when turmoil in Italian politics slashed more than 300 points from the Dow Jones industrial average. But what will happen next? Will the panic continue or abate, as it did on Wednesday, or are there other, perhaps even bigger, risks on the horizon?

To help answer such questions and anticipate potential future hazards, BlackRock has just launched the BlackRock Geopolitical Risk Dashboard (BGRD), a global market barometer of the  major geopolitical risks confronting financial markets.

The list is developed by gauging the market’s attention to geopolitical risks via analyses of financial news stories, analyst reports and tweets associated with geopolitical risks. Then BlackRock calculates the frequency of words that relate to geopolitical risk, adjusted for positive and negative sentiment in the text of articles, tweets and analyses, and, after assigning a heavier score to analysts’ reports, assigns an overall score to the BlackRock Geopolitical Risk Indicator index (BRGI). The higher the index, the more financial analysts and media are referring to geopolitics.

The dashboard also describes and scores each of the 10 risks, the likelihood that each will happen and the potential market impact if it does.

The index is currently at 0.62, having bounced off 11-month lows, indicating multiple risks on the market’s radar, but it’s well below the October 2017 high just over 1.0. The top three risks listed in descending order, are currently:

  • U.S.-China relations as the U.S. threatens tariffs on imports of Chinese goods
  • Tensions in the Mideast Gulf, following the U.S. withdrawal from the Iran nuclear deal, which could potentially unravel the entire deal because of reimposed U.S. sanctions hitting European and Asian companies doing business with Iran
  • North American trade if the U.S. withdraws from the North American Free Trade Agreement (NAFTA) following  talks with Canada and Mexico

The Geopolitical Risk Dashboard was created for institutional investors and is utilized by BlackRock’s portfolio managers and the firm’s institutional clients, according to a spokeswoman. She said advisors accessing BlackRock’s Advisor Center have access to the same risk management technology.

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