Jeff Kleintop, Chief Global Investment Strategist at Charles Schwab, points out that recent developments have caused markets to focus on geopolitical risks that includes renewed trade tensions, North Korean missile launches, Iran abandoning the nuclear deal, instability in Venezuela, and the European parliamentary elections. He notes that diversification could be the key to reduced risks.
Key Quotes:
“Geopolitical risk has recently returned to the markets in the following five ways:
1. Renewed trade tensions between the U.S. and China and the looming possibility of auto. Tariffs impacting Europe and Japan
2. New missile launches by North Korea
3. The U.S. intensifying sanctions on Iran and deploying a carrier strike group to the Middle East
4. An increasingly unstable situation in Venezuela
5. The fragmentation that may result from the upcoming European parliamentary elections.”
“What to do: Diversify the risk. Geopolitical risk is ever present, but developments cause it to affect the markets from time to time. In general, these threats tend to weigh on global stocks broadly rather than targeting only specific sectors or countries. With global stocks vulnerable to a pullback, it is fortunate for investors that the trend in the degree to which the world’s stock markets move in sync with each other has generally been trending lower. The lower correlation between markets enhances the potential risk-reducing benefits of diversification.”
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