Geopolitical volatility returns to the financial markets

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Rarely since the 1970s has the global economy seemed so turbulent.

Article originally published by The Financial Times. Hargreaves Lansdown is not responsible for its content or accuracy and may not share the author's views. News and research are not personal recommendations to deal. All investments can fall in value so you could get back less than you invest.

Published by

16 Oct 2023

The march of globalisation has slowed. The dual shocks of the Covid-19 pandemic and Russia’s invasion of Ukraine have muddied monetary policy and upset energy markets and supply chains. Economic nationalism, US-China tensions, and fragmentation have taken root. Governments are taking a bigger role in economic management, particularly faced with the urgency of the climate transition. The tragic return of conflict to the Middle East only underscores the pattern of rising geopolitical risk.

Market indicators reflect this. The Vix index — a measure of expected volatility — has averaged notably higher since 2020 than in the decade before. The World Uncertainty Index, which measures the prevalence of the word “uncertain” in analysts’ reports, has been trending upwards for years and has jumped significantly since 2021. The more uncertain future is altering the playbook of market participants, from investors to central bankers.

First, quantitative models used to price assets