BlackRock geopolitical risk dashboard

  • Introduction and highlights

    We see geopolitical risk as a material market factor in 2019, especially in an environment of slowing growth and elevated uncertainty about the economic and corporate earnings outlook. Market attention to global geopolitical risk has hit a high. At the center of the geopolitical debate? Increasing rivalry between the U.S. and China across economic, ideological and military dimensions. We take a deep dive into the race between the two countries for global technological leadership.

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    Our geopolitical risk dashboard features both data-driven market attention barometers and judgment-based assessments of our top 10 individual risks. We show the market attention to each risk, assess the likelihood of it occurring over a six-month horizon, and analyze its potential market impact. We adjust the market impact reading for how much each risk may already be priced into markets. The greater the market’s attention to the risk, the lower our estimate of the potential market impact. Key points of our latest update:

    U.S.-China relations have transitioned from strategic cooperation to strategic competition and intense rivalry. Technology is the main game. The U.S. and China are in a race to dominate the industries of the future. Recent steps by the U.S. to ban foreign adversaries from American telecom networks, and to limit the export of U.S. equipment and services to Chinese tech giant Huawei, intensified tensions in recent weeks. These actions, along with retaliatory steps by China, are likely just the beginning. Our take: Restrictions on both U.S. and Chinese technology companies–grounded in both political and security concerns, as well as market concerns—will increase in scope and intensity. And China will double down on indigenous innovation, as the country’s technology sectors begin to decouple—with countries soon forced to choose sides.

    Trade will remain at the center of U.S. foreign policy in 2019. Market attention to our global trade tensions risk has increased over the past month as talks between the U.S. and China unraveled and ratification of the United States Mexico Canada Agreement (USMCA) became more uncertain. We are increasing our assessment of the likelihood of this risk. Tougher rhetoric from both the U.S. and China, tit for tat tariff escalation and increasing tensions over U.S. restrictions on Chinese tech signal a trade war that is getting increasingly difficult to de-escalate. Meanwhile, the recent threat of U.S. tariffs on all Mexican imports dims prospects for the passage of the USMCA before the 2020 elections, and reduces incentives for other countries working to reach a trade deal with the U.S. Global trade tensions could rise further if the U.S. implements tariffs on imported autos and parts from Europe or Japan.

    Market attention to our Gulf tensions and European fragmentation risks are among the highest on our list. In the Gulf, the U.S. has intensified its maximum pressure campaign against Iran,  putting significant pressure on the Iranian economy and currency. We worry about a descent into general conflict—though view it as unlikely, for now. Escalation on both sides has increased the risk of significant incidents. In Europe, a Brexit delay until October reduces near-term risks, but uncertainty over the long-term UK/EU relationship remains elevated. The leadership change underway has increased the chances of a binary outcome of either a No Brexit or No-deal Brexit. European parliamentary elections delivered a mixed result that saw anti-EU parties, as well as pro-EU Greens and Liberals, gain at the expense of mainstream parties. We expect intense political jockeying over the coming months, with important positions due to be filled. Tensions related to the Italian budget negotiations appear likely to bubble up in the coming months.

    Key updates: We have increased the likelihood of Global trade tensions and keep our assessment of Gulf tensions at a high level. This month, we also introduce likelihood and market impact assessments for our U.S.-China competition and South Asia tensions risks. Our U.S.-China competition risk starts at a high likelihood level, as both the U.S. and China take steps toward technology sector decoupling. We assign a relatively lower likelihood score to our South Asia tensions risk. This follows a landslide victory by Prime Minister Narendra Modi in the Indian elections and a cooling of hostilities between India and Pakistan in recent months.

    The impact of geopolitical shocks has historically tended to be more acute when the economic backdrop is weak, our analysis of asset price reactions to 68 risk events since 1962 shows. This is one reason why we see geopolitical risk as a material market factor in 2019 and beyond, against a backdrop of slowing growth and elevated economic uncertainty. We see U.S. Treasuries and gold providing  a potential buffer against risk asset selloffs triggered by geopolitical crises.

    Tracking geopolitical risks and their market impact is as much an art as a science. We are  continuously updating our risk scenarios and fine-tuning our methodologies. This month, we recalibrated our BGRIs by lengthening the historical baseline against which we measure today’s level of market attention to each particular risk. See Gauging geopolitics of June 2019 for details. Our scenarios  are hypothetical, and our analyses related to market impact are not recommendations to  invest in any particular investment strategy or product.

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Notes: We identify specific words related to geopolitical risk in general and to our top-10 risks. We then use text analysis to calculate the frequency of their appearance in the Refinitiv Broker Report and Dow Jones Global Newswire databases as well as on Twitter. We then adjust for whether the language reflects positive or negative sentiment, and assign a score. A zero score represents the average BGRI level over its history from 2003 up to that point in time. A score of one means the BGRI level is one standard deviation above the average. We weigh recent readings more heavily in calculating the average. We recently improved the methodology of our global BGRI, tying it closely to our other risks and updating the keywords. The chart may look different from previous updates as a result.
Relative likelihood and market impact of risks

Focus risk
BlackRock Geopolitical Risk Indicator

Risk scenario description:

Our view:

Notes: We identify specific words related to this geopolitical risk in general and to our top -10 risks. We then use text analysis to calculate the frequency of their appearance in the Refinitiv Broker Report and Dow Jones Global Newswire databases as well as on Twitter. We then adjust for whether the language reflects positive or negative sentiment, and assign a score. A zero score represents the average BGRI level over its history from 2003 up to that point in time. A score of one means the BGRI level is one standard deviation above the average. We weigh recent readings more heavily in calculating the average. The BGRI’s risk scenario is for illustrative purposes only and does not reflect all possible outcomes as geopolitical risks are ever-evolving.

The chart above shows our assessment of the relative likelihood of our top 10 risks and the potential severity of their market impact. Our geopolitical experts identify potential escalation triggers for each risk and assess the most likely manifestation of the risk over the next six months. The relative likelihood of each event (vertical axis) is then measured relative to the remaining risks. The severity of market impact (horizontal axis) is based on Market Driven Scenarios (MDS) analysis from our Risk and Quantitative Analysis group and estimates the one-month impact of each risk on global equities (as measured by the MSCI ACWI) if it were to come to pass. Colored lines and dots show whether BlackRock’s Geopolitical Risk Steering Committee has increased (orange) or decreased (green) the relative likelihood of any of the risks from our previous update. We also show our overall measure. Its likelihood score is based on a simple average of our top 10 risks; the market impact is a weighted average by likelihood score. Our Geopolitical Risk Steering Committee has raised the likelihood of one of our risk and kept another at a high level. This month, we also introduce two new likelihood and market impact assessments to our dashboard:

Global trade tensions

  • We are increasing our likelihood score amid uncertainty as U.S.-China trade talks and diminishing prospects for the ratification of the U.S. trade agreement with Mexico and Canada. Trade tensions could rise further if the U.S. implements auto tariffs on Europe and Japan.
  • A meaningful trade deal between the U.S and China looks to be a remote possibility. The best potential outcome is a truce—potentially at the G20 leaders meeting in late June—that postpones additional tariffs. The U.S.-China trade conflict is part of a structural strategic competition. Political gains from being tough on China may overshadow reasons for Trump to compromise.
  • The threat of U.S. tariffs on all Mexican imports—alongside Democratic demands to bolster the pact's labor, environment, enforcement and pharmaceutical provisions—puts ratification of the U.S.-Mexico-Canada Agreement increasingly at risk.
  • The U.S. has delayed a determination on auto tariffs until November 13. Meanwhile, the U.S. and EU are preparing tit-for-tat tariffs following a WTO ruling that EU subsidies to a European aircraft company were illegal. Unofficial talks have yielded little progress, however we view them as an essential fig leaf to prevent additional tariffs and potential escalation.

Gulf tensions

  • We keep the likelihood of our Gulf tensions risk at an elevated level, amid increasing tensions between the U.S. and Iran.
  • The U.S. has extended its maximum pressure campaign against Iran, causing significant deterioration in and pressure on the Iranian economy and currency. The downing of a U.S. drone, as well as a series of attacks on shipping vessels in the Persian Gulf and off the coast of Yemen—reminiscent of the “tanker wars of the 1980s”—increase tensions. We worry about a descent into general conflict—though view it as unlikely, for now. Escalation on both sides has increased the risk of significant incidents.
  • An important potential flashpoint is Iran’s threat to stop complying with aspects of the nuclear deal, which could jeopardize European efforts to save the accord and prompt a U.S. response.
  • U.S. relations with Saudi Arabia remain under some pressure from the U.S. Congress, which is pushing for additional sanctions and decreased cooperation. President Trump has strongly resisted these efforts.

U.S.-China competition

  • We introduce our likelihood assessment of U.S.-China competition at a high level, as both sides take steps to decouple their tech sectors.
  • U.S.-China tensions are broadening out to include economic, military and ideological dimensions. The rivalry is focused on technology and coming to a head in the debate over fifth-generation (5G) cellular networks. See our U.S.-China competition focus risk.

South Asia tensions

  • We introduce our likelihood assessment for South Asia tensions at a relatively low level, in the aftermath of a landslide victory by Prime Minister Narendra Modi in the Indian elections and as hostilities between India and Pakistan have cooled in recent months.
  • Following the elections, our attention now turns to prospects for reform. In the near-term, we expect Modi to focus on campaign promises related to infrastructure development and farming, rather than on broader changes to the business environment. Longer-term, we worry about the fiscal pressures generated by India’s demographic situation and the government’s spending policies.
  • We see tensions between India and Pakistan as unlikely to escalate in the near-term. Any action by Pakistan could further stress its weak economy, and incentives for Modi to take a tough approach toward Pakistan have diminished since the Indian elections.

Market attention to U.S.-China competition is ticking up. We take a deep dive into this area as we see tensions as structural and long-lasting.


The U.S. and China are competing to take the commanding heights of technology. This competition is coming to a head in the debate fifth-generation (5G) cellular networks. This is the high-speed mobile technology that will enable enhanced communications and advanced technology  solutions. First adopters of 5G are expected to sustain a significant long-term competitive advantage. The U.S. and China see 5G leadership as a  matter of economic and national security and are competing to be the first to deploy the technology and set the standards for 5G globally. Each country is ramping up efforts and adjusting policies to win the 5G race. In China, technology development has the full weight of the  national government behind it. The government has laid out a comprehensive plan — Made in China 2025 — to create globally competitive firms and reduce China’s dependence on foreign technology. In the U.S., by contrast, the development of new technologies is led by the private sector. The U.S.  is home to many of the world’s most innovative firms and a strong pool of talent. Silicon Valley operates with limited regulation, coordination  or direction from the national government. This enables diffuse outcomes. Yet the U.S. lacks a coordinated technology strategy, employees of U.S. tech companies often oppose government contracts, and concern is rising that the U.S. government is not doing enough to support innovation.

Key issues

Chinese President Xi Jinping has called for China to surpass the U.S. technologically by 2030, sparking a strong reaction in the U.S. Washington  increasingly views advanced technologies as a zero-sum game; any progress made by China is seen as coming at the U.S.’s expense. The current  challenge between the U.S. and China is focused on three key issues: national security, economic competitiveness, and global systems dominance.

National security

U.S. government officials fear that technological advances made by China will threaten U.S. national security. The U.S. is taking measures to protect its  technology and intellectual property (IP) from transfers, acquisitions and other perceived threats to its national security. These include:

  • Expanded CFIUS authority: Legislation expanded the authority of the Committee on Foreign Investment in the United States (CFIUS) in 2018 by extending its powers and offering a broader definition of what constitutes “critical technologies.” It does not single out specific countries, but is seen as a tool for countering Chinese attempts to acquire sensitive U.S. technologies and IP. Recent actions forcing Chinese rms to unwind their acquisitions of U.S. companies on national security grounds demonstrate the extent of CFIUS’s authority.
  • New export controls: The Export Control Reform Act of 2018 expands the U.S. export controls process to review joint ventures involving sensitive U.S. technology. In line with this legislation, the U.S. could soon implement new export controls targeting China across a range of technologies.
  • Visa restrictions: The U.S. administration is considering measures to block Chinese citizens from performing sensitive research at U.S. universities and research institutes over fears they may acquire critical IP. Certain types of projects could become subject to personnel restrictions — particularly those related to technologies central to China’s Made in 2025 strategy.
  • Entity restrictions: The U.S. has implemented whole entity restrictions against Huawei and could move toward similar restrictions against Chinese surveillance, AI, and other technology companies. Such restrictions could prevent companies from doing business in the U.S. or purchasing U.S. components. Any blocking of partnerships with foreign countries and companies utilizing Chinese technology would have even greater impact.

China, too, cites national security justifications in its push for technology development. China wants to reduce its dependence on foreign suppliers of  digital and communications equipment and, instead, scale up its own capabilities and cyber defenses. Steps taken include:

  • Unreliable Entities List: In response to recent actions by the U.S., China announced on May 31 the creation of an “unreliable entities list” with the intention of blacklisting foreign companies, organizations, or individuals that hurt Chinese companies. Chinese officials have promised additional details on what constitutes an “unreliable entity” and how the designations will be implemented.
  • Cybersecurity Law: Amid escalating tensions, China has taken steps toward implementing its Cybersecurity Law, which had been delayed since taking effect in June 2017. The law could be used to restrict foreign companies’ ability to purchase Chinese technology or sell foreign technology into the Chinese market, on the basis of national security. It could also include measures restricting data transfer and forcing data localization.

Economic competitiveness

Each country is taking a very different approach toward achieving global technology leadership, and this is spilling over into the trade dispute. China’s Made in China 2025 strategy is reliant on government subsidies, technology transfer, and the promotion and protection of national  champions. China’s state-led model helps to ensure that domestic firms are at the forefront of technology standards and development globally. These  practices are clear in its approach to 5G development. Not only have recent government plans earmarked $400 billion for 5G-related investments, but  the government has also arranged for its top telecom providers to coordinate on 5G development, and for Chinese Internet platform companies to subsidize 5G rollout. In the aftermath of the recent U.S. actions against Chinese technology companies, the Chinese government announced tax breaks for Chinese semiconductor companies and software developers.

This is a point of contention for the U.S., which sees Chinese government support as threatening the ability of U.S. companies to compete globally. The U.S. administration has leveraged Section 301 of the Trade Act of 1974 to combat China’s industrial policy and approach to IP. The U.S. has imposed  25% tariffs on $250 billion worth of Chinese imports in accordance with this measure, and has threatened to implement tariffs on an additional $300 billion worth of Chinese imports. The Section 301 report mentions “Made in China 2025” more than 110 times. Resolving the tariff dispute, as well as the underlying structural issues, is the focus of ongoing negotiations.

Global systems dominance

For nearly half a century, the U.S. has guided the growth and development of the Internet in a model that is characterized by limited regulation, privacy  and free speech. Now China is presenting an alternative global systems model with its strategy to transform into a cyber superpower. China’s Internet  guides public opinion and fosters economic growth — and is tightly controlled to ensure regime stability. The competition between the U.S. and China raises the prospect of technological spheres of influence. In the case of 5G, the U.S. administration has  made clear that countries and companies may be forced to choose sides. The recent Entity List designation of Huawei and implementation of U.S. export controls will accelerate this trend. We see this leading to tensions between the U.S. and traditional allies,  with early signs the UK and Japan may be forced to the U.S. side, despite initial opposition.

Implications for markets

We see confrontation over these issues driving the progressive decoupling of the U.S. and Chinese technology sectors, with meaningful implications for the global economy and markets. It makes sense for investors to own selected technology stocks in both the U.S. and China—as we detailed in The heat is on for tech stocks amid U.S.-China cold war—and to deepen their understanding of the import and export control regime of different nation states. Understanding the full range of the implications of the U.S.-China technology competition will be a core focus of the BlackRock Investment Institute this year.

  • Read our previous focus risk

    January focus risk

    Major cyberattack(s) (comments as of January 2019)

    The BGRI for our Major cyberattack(s) risk is hovering above its historical average, signaling moderate market attention to this risk. Yet cyberattacks are increasing in scope and intensity. We believe markets are underestimating the impact of cyberattacks as four broad trends are converging:.

    1. Both the opportunity for attack and the threat posed are rising as the world becomes increasingly digitalized. The increased use of artificial intelligence in business also heightens exposure to cyber risks.
    2. The proliferation of Internet-connected devices and availability of open source code have lowered the barriers to entry for cyber crimes. Cyber actors across the world vary in sophistication and capability, ranging from well-funded government agencies to poorly resourced criminal groups and terrorist networks.
    3. Digital warfare is becoming an important tool of statecraft, allowing countries to pursue their geopolitical and economic objectives through a wider variety of means. In 2016, NATO expanded its definition of “war domains” beyond air, land and sea to include cyberspace.
    4. Defensive capabilities have been slow to evolve. In fact, many organizations have effectively conceded that their infrastructure will be breached, and are instead focusing on minimizing the ensuing damage. In the U.S., more than 50 federal, state and local laws mandate disclosure of cyber breaches to regulators or affected consumers. In Europe, the recently implemented General Data Protection Regulation (GDPR) requires companies to publicly disclose data breaches to national data protection authorities and to individuals when the threat of harm is significant. Failure to do so can result in substantial fines.

    As the cyber threat rises, we expect financial markets to pay increasing attention. We see three cyber-related risks and opportunities with a potential market impact: threats to critical infrastructure; threats to specific corporates; and opportunities for cybersecurity.

    1. Threats to critical infrastructure
      • Physical infrastructure: Modern economic activity depends on the availability of electricity, meaning any significant interruption to power supply could directly damage assets and infrastructure and force a loss in sales revenue to electricity supply companies and the businesses that rely on them. Our analysis of the potential impact of an attack on the U.S. power grid shows equity market sell-offs, led by utilities and industrials. U.S. Treasuries, the yen and gold would rally. Utility credit spreads would widen, and natural gas rally as an alternative resource.
      • Financial infrastructure: The IMF has now recognized cyberattacks as posing a systemic risk to the financial system. Attacks in advanced economies typically target data or business disruptions, while attacks in emerging markets are more frequently related to fraud. We see the market impact in such a scenario exacerbated by a drop in confidence among market participants. We could see financial stocks leading a global risk-off reaction; Treasuries and gold rallying; and the U.S. dollar benefiting from broad risk aversion and foreign investors liquidating overseas assets to meet margin calls.
      • Technology infrastructure: A cyberattack on technology infrastructure could result in a prolonged outage. This may cause significant disruption and loss of business to industries that rely on these services, as well as reputational damage for the data, storage and internet providers. The effects of such an outage could cascade through supply chains and to other industries such as insurers. We believe large-cap companies would underperform smaller companies, as the top technology service providers and their clients tend to be larger companies. We see the Internet software and services, retail, and insurance industries suffering the most.
    2. Threats to specific corporations: Many companies have witnessed sharp share price declines after disclosing cyberattacks in recent years. Attacks have typically targeted companies with large amounts of personal data. Data is a double-edged sword: It has huge value in allowing companies to understand customer trends, but also becomes an enormous burden to protect. The IMF estimated in 2017 that the cost of cyber losses to the U.S. economy range between 0.6% to 2.2% of GDP a year , although this is more than offset by the positive contribution from Internet-based activity. Major financial services and tech companies are often targets but tend to have advanced defenses. We see the utility, energy and defense sectors as among the most vulnerable, although they are now increasing their spending on cybersecurity. Across all industries, risks to watch include companies involved in drawn-out mergers, and firms that rely heavily on third-party vendors.
    3. Opportunities in cybersecurity: It is broadly accepted within the technology industry that no cybersecurity provider is able to provide a comprehensive solution — the scope of the threat is too broad. Companies’ chief security officers are charged with patching together a wide range of tools. The existing technology has its faults, but we believe spending is extremely durable given regulatory requirements to demonstrate preventative technology is in place. We find opportunities in four main areas.
      • Cloud computing:Some see cloud technology as vulnerable to an attack, but others believe shifting operations to “the cloud” is one of the best ways to protect against cyberattack. Technology companies are offering two types of cloud-based solutions. The first provides cloud-based network services, making the servers that were previously hackable redundant. The second aims to negate the impact of hack attempts: All of a company’s IP traffic is sent to the cloud, cleaned and returned to the company. This is a thorough method to prevent cyberattacks, but it comes at the cost of speed.
      • Network segmentation: An alternative approach sees companies focusing the bulk of their technology spending on software that “fragments” the network to minimize the damage of a potential cyber risk, rather than looking to prevent hackers from gaining entry altogether. The company is alerted when a hacker has gained access to a very small part of a database/server, and the company can then shut down that part of the operation until the attack is nullified.
      • Identity: User verification is one of the biggest challenges in cybersecurity. Systems are much harder to hack if there is constant verification. This means companies offering solutions that implement regular checks via single sign-on are in increasing demand.
      • Blockchain: Distributed ledgers store information in multiple locations across a single network, meaning that if hackers succeeded in altering one record, it can instantly be identified as different to other records in the system. Blockchain technology is also offering improved data encryption, and producing new and more secure ways of controlling network access, including through multi-signature and multi-party computation cryptography. This can eliminate the need for password-based security systems.

Risk Indicator

The BlackRock Geopolitical Risk Indicator (BGRI) continuously tracks the relative frequency of analyst reports, financial news stories and tweets associated with geopolitical risks. We have used the Refinitiv Broker Report and the Dow Jones Global Newswire databases as sources, and recently added the one million most popular tweets each week from Twitter-verified accounts. We calculate the frequency of words that relate to geopolitical risk, adjust for positive and negative sentiment in the text of articles or tweets, and then assign a score. This score reflects the level of market attention to each particular risk relative to a five-year history.  We assign a much heavier weight to brokerage reports than to the other data sources because we want to measure the market's attention to any particular risk, not the public's.

Our global BlackRock Geopolitical Risk Indicator has ticked up recently, driven by heightened market attention to our European fragmentation and U.S. -China competition risks. See the Global overview chart. Market attention to our Global trade tensions risk has started ticking higher again after an extended decline from 2018 peaks.

The BGRI is primarily a market attention indicator, gauging to what extent market-related content is focused on geopolitical risk versus a five-year historical baseline. The higher the index, the more financial analysts and media are referring to geopolitics relative to this baseline period. We also take into account whether the market focus is couched in relative positive or negative sentiment. This can help mitigate spikes in the BGRI at times when market attention is high but positive sentiment indicates that the risk or a particular scenario may actually be receding. Conversely, the sentiment component can accentuate gains in the index when sentiment takes a turn for the worse. Example: The rise in our U.S.-China competition BGRI in 2019 has been exacerbated by worsening sentiment as both countries escalated their rhetoric around trade and strategic tensions.

Here's the step-by-step process for calculating and interpreting our BGRIs:

  1. BGRI attention: This is the market attention score. The global BGRI uses words selected to denote broad geopolitical risks. Local BGRIs identify an anchor phrase specific to the risk (e.g., North Korea) and related words (e.g., missile, test). A cross-functional group of portfolio managers, geopolitical experts and risk managers agrees on key words for each risk and validates the resulting historical moves in the relevant BGRI. The group reviews the key words regularly.
  2. BGRI sentiment: This is the sentiment score. We use a proprietary dictionary of about 150 "positive sentiment" words and 150 "negative sentiment" words. We use a weighted moving average that puts more emphasis on recent documents.
  3. BGRI total score: This is BGRI attention — (0.2 * BGRI sentiment). We want the indicator to fundamentally measure market attention, so we put a much greater weight on the attention score. A 20% weight of the sentiment score can mitigate spikes at times when risk may actually be receding.
  4. Meaning of the score: A zero score represents the average BGRI level over its history. A score of one means the BGRI level is one standard deviation above the average. We weigh recent readings more heavily in calculating the average. The level of the BGRIs changes slowly over time even if market attention remains constant. This is to reflect the concept that a consistently high  level of market attention eventually becomes “normal.” In other words, the effects of elevated BGRIs wash out over longer periods as investors become more accustomed to the risk. A recent tweak to our BGRIs has moderated the speed of this decay. See Gauging geopolitics of June 2019 for details.

Market impact

Our MDS framework forms the basis for our scenarios and estimates of the one-month impact on global equities. The first step is precise definition of  our scenarios – and well -defined catalysts (or escalation triggers) for their occurrence. We then use an econometric framework to translate the  various scenario outcomes into plausible shocks to a global set of market indexes and risk factors.

The size of the shocks is calibrated by various techniques, including analysis of historical periods that resemble the risk scenario. Recent historical  parallels are assigned greater weight. Some of the scenarios we envision do not have precedents – and many have only imperfect ones. This is why we  integrate the views of BlackRock’s experts in geopolitical risk, portfolio management, and Risk and Quantitative Analysis into our framework.  See the 2018 paper Market Driven Scenarios: An Approach for Plausible Scenario Construction for details. The BGRI’s risk scenarios are for illustrative purposes only and do not reflect all possible outcomes as geopolitical risks are ever-evolving.

Source: BlackRock Investment Institute, with data from Refinitiv, . Notes: The chart shows our estimates of the potential market impact on the MSCI ACWI Index, the grey bar shows our original estimate, the black bars show the adjusted impact based on the level of the BGRI. For example, an elevated BGRI level for a risk would suggest increased investor attention and therefore a lower BGRI-adjusted market impact. Estimates are based on analysis from BlackRock’s Risk and Quantitative Analysis group. See the How it works section and the 2018 paper Market Driven Scenarios: An Approach for Plausible Scenario Construction for details. Some of the scenarios we envision do not have precedents – or only imperfect ones. The scenarios are for illustrative purposes only and do not reflect all possible outcomes as geopolitical risks are ever-evolving. Original estimates are based on the analysis run on the following dates:

BGRI-adjusted market impact

We enhance our market impact analysis by adjusting the market impact scores to reflect shifting market attention over time. When scenarios are first defined, market shocks are calibrated to reflect what is not already priced in to the market by investors. We call this the original estimate.

As market attention fluctuates, the BGRI-adjusted market impact either increases or decreases in severity based on how market attention evolves. For example, an elevated BGRI level relative to the point at which a scenario is first defined would suggest an increase in investor attention. This would result in a less severe BGRI-adjusted market impact relative to our original estimate. The converse result — in the case of a depressed BGRI level — would also hold. We determine a factor that scales the size of the BGRI move since the date of our original market impact estimate to calculate the BGRI-adjusted market impact. We use a sigmoid function to do so, or a statistical technique that is characterized by an S-shaped curve. We then multiply our original estimate of the market impact by (1 – scaling factor) to reach the BGRI- adjusted market impact score.