Chart of the Week: Geopolitical Risk Index

Macro 4 minutes to read

Christopher Dembik

Head of Macro Analysis

Summary:  Increased confidence that a Sino-US trade deal will soon be sealed is reflected in an easing of the Geopolitical Risk Index, a fascinating gauge of global tensions. But though it has fallen, the index remains at an elevated level.


The Geopolitical Risk Index is based on the work of D. Caldara and M. Iacoviello (“Measuring Geopolitical Risk”, working paper, Board of Governors of the Federal Reserve Board, 2017). The methodology is rather simple as it counts the occurrence of words related to geopolitical tensions in leading international newspapers. As far as I know, this is the only geopolitical risk benchmark that gives a historical perspective since it gets back to 1899.

The one-year average index has been falling since last September as trade tensions are less of a concern for investors. It currently stands at 140, which is back to where it was in Spring 2017, but it is still above its long-term trend since 2007 at 111. 

The ongoing downward trend may continue in the short-term as the expected trade agreement between China and the USA should be finalised in coming weeks – insiders are talking about early June, but we are well aware it may be postponed again.

Despite the strengthening of US sanctions against Iran that will primarily affect China, it seems that negotiations are going fine. This week, Vice Premier Liu He will lead a Chinese delegation for additional discussions in Washington, starting on May 8. China seems committed – at least officially – to promote opening-up at a higher level, which would mean increasing goods and services imports on a larger scale and making more efforts to protect IP rights, as confirmed by China’s finance minister Liu Kun this past Thursday.
Click here to download this week's full edition of Macro Chartmania.
Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-hk/legal/disclaimer/saxo-disclaimer)

Saxo Capital Markets HK Limited
Rooms 2001-02, 20/F York House
The Landmark
15 Queen's Road Central
Hong Kong

Hong Kong S.A.R

Saxo Capital Markets HK is a company authorised and regulated by the Securities and Futures Commission of Hong Kong. Saxo Capital Markets HK Limited holds a Type 1 Regulated Activity (Dealing in securities); Type 2 Regulated Activity (Dealing in Futures Contract) and Type 3 Regulated Activity (Leveraged foreign exchange trading) licenses (CE No. AVD061). Registered address: Rooms 2001-02, 20/F York House, The Landmark, 15 Queen's Road Central, Hong Kong

By clicking on certain links on this site, you are aware and agree to leave the website of Saxo Capital Markets, proceed on to the linked site managed by Saxo Group and where you will be subject to the terms of that linked site.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc.

Please note that the information on this site and any product and services we offer are not targeted at investors residing in the United States and Japan, and are not intended for distribution to, or use by any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation. Please click here to view our full disclaimer.