What’s Going On Here?According to a new report from BlackRock, investors are so preoccupied with the newest talking point that they’re completely missing the geopolitical risks in the background. What Does This Mean?Investors have been worrying about inflation for a while now, and they’re right to be: rising prices might push central banks to raise interest rates, which would hurt stock prices. But BlackRock reckons all that talk is distracting them from something that could impact their investments even more – namely global tensions.
The firm’s key indicator of geopolitical risk, after all, has hit its lowest level since 2017. In other words, investors aren’t paying enough attention to three things in particular: the threat of major cyberattacks, the US-China technology rivalry, and the post-pandemic political crises in emerging markets. Why Should I Care?For markets: Change is good.
If tensions do flare up, BlackRock thinks investors will need to adjust their portfolios. The US-China tech stand-off could weaken the Chinese yuan, which might hurt investments in the currency. A cyberattack could push investors toward the safety of the US dollar, which would be good for foreign investors but bad for export-reliant American companies. And since Latin American consumer staples tend to do well no matter the state of their economies, they stand to benefit from the turmoil in emerging markets.
For you personally: How to bet on a hot mess.
When geopolitical risks rise, stock market volatility – i.e. swings in share prices – also tends to increase. So if you think BlackRock is onto something, you could invest in a key measure of stock market volatility – the Volatility Index (VIX) – by buying into an exchange-traded fund (ETF) that tracks VIX futures contracts. Just be aware of one major drawback: you have to pay fees whenever the ETF reinvests in new futures contracts, which it does whenever the old ones expire. So you won’t just not make money if the VIX stays flat or drops off: you’ll actually lose money. | 