Four Major Risks Today

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In recent years, elevated levels of uncertainty have become the “new normal”.

With terrorist attacks around the world… Twittering uncertainty in the U.S. White House… the potential for a U.S.-China trade war… and a nuclearised North Korea… the risk of a global crisis seems higher than ever.

Below are a few of what political risk consulting firm Eurasia Group – where I used to work – sees as some of the biggest geopolitical risks for 2018. And where geopolitics go awry, markets often soon follow.

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Cyberattacks could do enormous damage

The risk of a major cyberattack has risen steadily, as the global economy becomes more and more connected to, and through, the internet. The data breaches, security vulnerabilities and high-level leaks – from Edward Snowden with the U.S. National Security Agency, to Equifax, to countless other examples – may all just be setting the scene for a massive cyberattack.

Whether it’s the destruction of a critical piece of infrastructure, a leak of information from a leading corporation or even the takedown of part of the internet itself, a large-scale cyberattack could have a massive effect on the world’s economies and markets.

North Korea will be a wild card for a long time

The possibility of war with pariah state North Korea has receded from the front pages recently, as the country’s volatile leader has extended an olive branch to its southern brother. But don’t think that means that everything is hugs and puppies and singing Kumbaya around campfire.

The repeated rumblings and missile tests by North Korea’s leader, Kim Jong-un, aren’t going to end – even if the upcoming Winter Olympics in South Korea provide a temporary respite. Conflict with North Korea will be on the list of “things to worry about today” for years to come… particularly when two hotheads – U.S. President Donald Trump and Kim Jong-un – spout inflammatory rhetoric as easily as they breathe.


Syria: Still here and still a flashpoint

After nearly seven years of conflict, the war in Syria is (ostensibly) winding down, with fighting continuing in just a few areas.

But there’s still a chance for continued, and escalated, conflict between the U.S., Russia, Iran and Syria… accidental or unintentional, or otherwise. You see, as Eurasia Group explains, Russian and U.S. bombers regularly fly into each other’s demarcation zones in what’s really a fairly small country. Just take a look at the following map from Eurasia Group.


Strikes in the wrong place could kill U.S. or Russian troops – further escalating tensions between the nations. It’s happened before… and the next time could be worse.

Russia and the U.S. at odds (or not)

Relations between the U.S. and Russia are already verging on openly hostile, but they could easily deteriorate.

Unless you live in a world without media, probably know that the investigation in the U.S. over whether Russia interfered in the 2016 U.S. elections – and whether anyone in the Trump presidential campaign or administration had any links or coordination with the Russian government over it – is still ongoing.

Several members of the Trump campaign and administration have already been indicted as a result of the investigation… and more could be coming.

It’s caused (even higher) levels of turmoil within the U.S. government. And Russia may be tempted to respond at some point, says Eurasia Group, possibly by leaking information on prominent Republicans in the U.S. – maybe also including the president.

Russia’s markets have suffered under sanctions for several years already… and Russian shares are already among the world’s cheapest. The potential for the scandal to destabilise the American president, possibly leading to impeachment or resignation, is a much bigger black box of risk.

How to protect yourself

Yesterday, I told you about some simple step to take to prepare for a crisis – whether it’s political or economic or in markets, or all at once. I’d add a few more thoughts to that list…

1. Diversify – Don’t invest in just one type of asset, but own stocks, bonds, gold, real estate and cash. And make sure these assets are not all in the same industry or country.

2. Don’t borrow too much to invest – Investing with borrowed money will make big losses even worse.

3. Hedge – Understand correlation in your portfolio. Try to have some holdings with prices that usually move in opposite directions.

4. Prepare for opportunity – Keep some cash on hand so you’ll be ready to invest at cheap prices when everyone else is running away. If you’ve been expecting the unexpected, you’ll be prepared to take advantage.

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