BLACKROCK INVESTMENT INSTITUTE | MAY 2019

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. 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 the potential market impact. Lastly, we highlight assets sensitive to two key risks that are on the market’s radar screen: Global trade tensions and European fragmentation. Key points of our latest update:

    We see trade remaining at the center of U.S. foreign policy in 2019. Market attention to our global trade tensions risk has fallen sharply from last July. Yet we are keeping our likelihood of the risk at a high level. Tougher rhetoric from both the U.S. and China, tit-for-tat tariff escalation and increasing tensions over U.S. restrictions on Chinese tech point to risks of a trade war that is getting increasingly difficult to de-escalate. A potential meeting between President Trump and President Xi at the G20 could result in a truce that postpones implementation of additional tariffs. Failure to agree on a deal at or prior to the G20, however, would likely bring an extended period of tariffs and negotiations, spurring a revival of macro uncertainty. Global trade tensions could rise if the U.S. implements tariffs on imported autos and parts from Europe or should ratification of the U.S. trade deal with Canada and Mexico become more uncertain.

    Market attention to our European fragmentation risk is among the highest on our list. We see the European economy stabilizing later in the year, but worry about a confluence of political risks. A six-month delay to Brexit has reduced the risk of a disruptive no-deal exit in the near-term. Yet divisions within the UK political system are preventing a deal being agreed upon and remain unresolved. European Parliament elections in May will be the next test of populist sentiment within the region, and election campaigns are underway. Populist leaders from both the far right and the far left are expected to deliver their strongest showing to date, although they remain far from gaining a majority. Key to watch will be whether populist groups can operate in a unified fashion, thereby allowing them to wield influence in line with their voting share. Further out, budget negotiations between Italy and the EU are set to restart in September and we see significant confrontation ahead.

    We have reframed our U.S.-China risk to focus on the strategic competition between the countries. Our U.S.-China competition risk now reflects how U.S.-China relations have transitioned from a broadly cooperative state to a more competitive phase. Competition is sharply focused on technology and is coming to a head in the rollout of 5G cellular networks. We see three issues at play: national security, economic competitiveness and global systems dominance. The evolution of these issues and their impact on global markets are key themes of our 2019 research agenda. We preview this tech race in our focus risk section.

    This month, we raise the likelihood of two of our risks: Gulf tensions and LatAm policy. The U.S. ratcheted up pressure on Iran by allowing sanctions waivers on Iranian oil exports to expire on May 2. This move will increase tensions between the U.S. and Iran and put upward pressure on oil prices. Meanwhile, U.S. relations with Saudi Arabia remain under some pressure amid a Congressional push for sanctions related to Saudi Arabia’s campaign in Yemen. In Latin America, we worry about a challenging policy environment in Brazil, a rapidly deteriorating economic situation amid election uncertainty in Argentina, and worsening crisis in Venezuela with spillover effects for global oil markets and neighboring countries.

    The effect of geopolitical shocks on global markets often is short-lived, according to our analysis of asset price reactions to 50 risk events since 1962, but can be more enduring in markets where the event occurs. The global impact has been more acute and long-lasting when the economic backdrop was weak. We see markets becoming more sensitive to geopolitical risks as global economic growth slows. We see U.S. Treasuries and gold providing a potential buffer against risk asset selloffs triggered by geopolitical crises. These perceived safe havens have historically rallied ahead of “known unknowns” such as elections, then lagged after the event as fading uncertainty boosted risk assets.

    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. The 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 two of our risks and focused on two others we view as most pressing:

Gulf tensions

  • We have increased the likelihood of our Gulf tensions risk amid increasing tensions between the U.S. and Iran and heightened pressure on the U.S.-Saudi Arabia relationship.
  • The U.S. has extended its maximum pressure campaign against Iran, by allowing sanctions waivers on Iranian oil exports to expire. We see this decision putting upward pressure on oil prices, increasing tensions between the U.S. and Iran — and putting the U.S. at odds with China and India, which are unlikely to zero-out imports of Iranian oil.
  • 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.

LatAm policy

  • We have increased the likelihood of our LatAm policy risk as the policy environments in Brazil and Mexico grow more complicated, economic crisis in Argentina deepens ahead of a crucial election, and the situation in Venezuela becomes protracted.
  • The Brazilian government appears committed to dealing with the country’s fiscal challenges, but is facing a difficult time navigating complicated parliamentary coalitions and opposition. In Mexico, the commitment to reform is pushing up against a slowing economy and trade risks.
  • Wrenching recession in Argentina is threatening incumbent President Mauricio Macri’s prospects in the run-up to October elections, where he is likely to face off against former president Cristina Kirchner. We worry about the spillover effects on global oil markets and neighboring countries of protracted crisis in Venezuela, as well as heightened risk of military confrontation.

Global trade tensions

  • We are keeping our likelihood score at a relatively high level even though market attention to global trade tensions has declined markedly.
  • Tougher rhetoric from both the U.S. and China, tit-for-tat tariff escalation and increasing tensions over U.S. restrictions on Chinese tech point to risks of a trade war that is getting increasingly difficult to de-escalate. Ratification of the U.S.-Mexico-Canada Agreement is far from certain.
  • 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. Trump could leverage national security justifications to impose tariffs on EU auto imports — if only to gain leverage in broader trade talks. We expect little of the talks but see them as an essential fig leaf to prevent such tariffs and EU retaliation.

European fragmentation

  • We see the European economy shaking off its current soft patch later this year, but there are notable geopolitical risks to our base case. Policymakers will have limited room to maneuver should the economy slip into recession.
  • The EU has agreed to delay the UK’s scheduled departure from the bloc until up to the end of October. The UK has begun preparations to hold European Parliamentary elections while hoping a deal can be ratified by May 22 to avoid hosting elections, although we see this as unlikely.
  • These elections take place on May 23-26. Populist parties are far from winning a majority, but we see a risk they take enough seats to gain veto rights on key policy decisions. By contrast, recent elections in Spain, Slovakia, and Finland show the strength of pro-EU centrist forces.

Market attention to our U.S.-China competition risk is elevated. We believe markets are focused too narrowly on the countries’ trade dispute — where progress is indeed likely — and are failing to appreciate the complexities of intense technological rivalry. We take a deep dive into this area as we see the tensions there as structural and likely long-lasting.

Background

The U.S. and China are competing to take the commanding heights of technology. This competition is coming to a head in the debate over 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 its efforts and adjusting its 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 seen as 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 more diffuse outcomes. Yet the U.S. lacks a coordinated technology strategy, employees of U.S. tech companies often oppose national security contracts, and concern is rising that the U.S. federal government is not doing enough to support research and development.

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 August 2018 by extending its powers and offering a broader definition of what constitutes “critical technologies.” It does not single out any specific country, but is seen as a tool for countering Chinese attempts to acquire sensitive U.S. technologies and IP. Though it could take more than a year to finalize, the package allows for pilot programs. We could see this having an impact in the short run.
  • 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. A proposed White House Office of Critical Technologies and Security would oversee the interagency process to identify and control new 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. is moving toward whole entity restrictions — preventing certain companies from doing business in the U.S. or purchasing U.S. components. A ban on telecommunications equipment from Chinese companies would reverberate through the global technology ecosystem. 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.

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.

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 tariffs on $250 billion worth of Chinese imports in accordance with this measure; the Section 301 report mentions “Made in China 2025” more than 110 times. Resolving the existing tariffs in place, 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 soon be forced to choose sides. We see this leading to tensions between the U.S. and traditional allies, with early signs the UK, Germany and other countries are ready to challenge the U.S. stance.

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 a result, as we detailed in The heat is on for tech stocks amid U.S.-China cold war. Understanding the full range of the implications 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. 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 fragmentationand U.S.-China competition risks. See the Global overview chart. We view recent declines in attention to our Global trade tensions risk as a sign that investors may be growing complacent about the risk and impact of trade conflicts.

The BGRI is primarily a market attention indicator, gauging to what extent market-related content is focused on geopolitical risk. The higher the index, the more financial analysts and media are referring to geopolitics.

We also take into account whether the market focus is couched in relative positive or negative sentiment. For example, market attention on geopolitical risks was extremely high during the Arab Spring of 2011. Much of the attention was focused on the potentially positive effects of the regime changes, however. The adjustment for this positive sentiment mitigated the Arab Spring’s impact on the BGRI’s level. Sentiment adjustment also helps us avoid overstating geopolitical risk when risks actually are being resolved.

Here’s the step-by-step process:

  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 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 level of the BGRIs changes 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.

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 scenario is for illustrative purposes only and does 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.