Forum Debate: The price of instability

We’re holding a series of webcast debates in Davos. Join our cast debating the following motion:

Markets are mispricing geopolitical risk.

• Add your voice to this Davos debate
• Vote on the motion in the poll below, and comment to support your opinion.
• The poll will close at the start of the session. Results and comments will be available to the moderator to frame the debate.

Relationships between the world’s major powers are under greater pressure, arguably more than at any time since the Cold War. Many mid-and emerging economies are hedging their plans and alliances in reaction to increasing geopolitical uncertainty. Economic challenges in Europe put internal ties under stress.

There is little light at the end of the tunnel of tensions in the Middle East. Indeed, the impact of conflict is spreading, with an enormous pressure exerted by the unprecedented numbers of refugees leaving conflict areas, combined with the threat and reality of homegrown terror impacting countries around the world.

The recent turmoil and predictions of increased geopolitical risk have had little apparent impact on global financial markets. The index of political risk calculated by analysis firm Dun & Bradstreet is at its highest level since 1994 (partly as a result of the euro-zone crisis), while the VIX index, which measures the implied volatility of America’s stock market, and is also known as the ‘fear gauge’, is near a 20-year low.

This debate will consider whether global market pricing realistically reflects growing geopolitical risk and instability, or whether current prices suggest complacency.

We invite you to provide your point of view in the lead up to and during the debate. Below are some resources to provide background.

Relationships between the world’s major powers are under greater pressure, arguably more than at any time since the Cold War. Many mid-and emerging economies are hedging their plans and alliances in reaction to increasing geopolitical uncertainty. Economic challenges in Europe put internal ties under stress.

There is little light at the end of the tunnel of tensions in the Middle East. Indeed, the impact of conflict is spreading, with an enormous pressure exerted by the unprecedented numbers of refugees leaving conflict areas, combined with the threat and reality of homegrown terror impacting countries around the world.

The recent turmoil and predictions of increased geopolitical risk have had little apparent impact on global financial markets. The index of political risk calculated by analysis firm Dun & Bradstreet is at its highest level since 1994 (partly as a result of the euro-zone crisis), while the VIX index, which measures the implied volatility of America’s stock market, and is also known as the ‘fear gauge’, is near a 20-year low.

This debate will consider whether global market pricing realistically reflects growing geopolitical risk and instability, or whether current prices suggest complacency.

We invite you to provide your point of view in the lead up to and during the debate. Below are some resources to provide background.

Resources
What next for geopolitics?. A video interview with Ian Bremmer, President, The Eurasia Group
The EUs next challenges are geopolitical. The Wall Street Journal.
Why aren’t current events affecting the markets? A video interview with Nouriel Roubini, Professor of Economics and International Business, Leonard N. Stern School of Business
Why are the financial markets so positive? Blog post by Mohamed A. El-Erian, Chief Economic Adviser at Allianz and a member of its International Executive Committee, Chairman of President Barack Obama’s Global Development Council
Top Risks 2015. The Eurasia Group

Author: Mike Hanley is Senior Director of Communications, Digital Content and Editing, at the World Economic Forum.

Image: A pedestrian holds an umbrella as he walks past an electronic board showing the stock market indices of various countries outside a brokerage in Tokyo January 15, 2015. REUTERS/Yuya Shino