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Geopolitical
risk dashboard
July 8, 2024

Geopolitical Risks – July update

Geopolitical risk is structurally elevated as we begin the second half of the year, in our
view. The world is entering the third distinct geopolitical era since World War Two,
following the Cold War and post-Cold War eras, and is searching for a new
equilibrium – but with continued competition and a significant risk of conflict.
Despite this more volatile risk environment, the global economy and economic
Tom Donilon
relationships have proven resilient. We think this is, in part, because key flashpoints –
Chairman — BlackRock Investment Institute
including in Ukraine and the Middle East – have remained contained thus far.

We maintain our three geopolitical themes for the year: deeper fragmentation
between competing geopolitical and economic blocs; a more volatile and less
predictable world order; and the rewiring of globalization accelerating. Elections
remain front and center in 2024. Several — including in France, Mexico and India —
sparked volatility. See BlackRock Bulletins on the French and UK results. Going Catherine Kress
forward, we are focused on the lead-up to the U.S. elections and implications of
Head of Geopolitical Research & Strategy
different scenarios in key areas such as taxes, trade, fiscal spending and regulation.

Key highlights this month include:

• We keep our Gulf tensions risk at a high level given the ongoing Gaza war and
potential for further regional escalation. Friction between Israel and Hezbollah is
building, and Iran’s nuclear program is accelerating. The conflict in the Middle Jack Aldrich
East elevates the risk of Major terror attack(s), in our view, with intelligence Vice President – Geopolitical Research &
agencies warning of high threat levels against U.S. and Western interests. Strategy

• We reaffirm our medium North Korea conflict risk rating and note upward
pressure. Russia and North Korea signed a strategic partnership agreement in
June and signaled a deeper, more extensive defense relationship. We see Russian
support increasing the nuclear threat on the Korean peninsula.
Stephanie Lee
• We highlight our European fragmentation risk. Centrist parties held control of the
Portfolio Manager – BlackRock Systematic
European Parliament in June elections, though right-wing and anti-establishment Active Equities
parties gained ground. In the UK, the Labour Party won in a landslide. France’s
unprecedented election outcome could lead to a left-wing coalition in parliament.

Our dashboard features both data-driven market attention barometers and

judgment-based assessments of our top risks. We show market attention to each risk,
assess the likelihood of it occurring over a six-month horizon and analyze its
potential market impact.
Our BlackRock Geopolitical Risk Indicators (BGRIs) track market attention to each Contents
risk using mentions in brokerage reports and financial news stories. They integrate Risk summary 2-4
natural language processing and machine learning techniques. This assessment
Framework 5
helps determine when geopolitical risks start to appear on investors’ radar screens –
and when they start fading. Scenario variables 6
We also have developed a market movement measure that we believe gives us How it works 7
insights into how asset prices are responding to geopolitical risks. It integrates
analysis from our Risk & Quantitative Analysis (RQA) team and its Market-Driven
Scenarios (MDS) for each risk. The gauge’s score is based on how similar the market
environment is to the MDS assumptions and how much the MDS-related asset prices
have moved over the past month. See the “How it works” section. We also list the three
assets that we see as the key variables of each MDS.
We continuously update our risk scenarios and refine our methodologies. Our
scenarios are hypothetical and do not reflect all possible outcomes. Our market
movement analyses are not recommendations to invest in any specific investment
strategy or product.

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Top 10 risks and our view

Market attention
Risk Description since 2019 and Our view
likelihood

The U.S.-China relationship has been stable on the surface since the
meeting between President Biden and President Xi last November, but
we see a new normal of intense competition churning just below the
surface. Increased working-level dialogue and senior visits should be
seen as a tactical exercise and do not structurally alter the competitive
Tensions
dynamics of the relationship, in our view. Persistent and large-scale
escalate
exporting of excess industrial capacity by China has become the next
U.S. China meaningfully
wave of tension as the U.S. and others aim to avoid a second “China
strategic over Taiwan
Shock,” or flood of Chinese imports that dampens domestic
competition or in the
manufacturing. The U.S. and its allies, including at the G7, are also
South China
focused on allegations that Chinese financial institutions have
Sea.
supported the Russian war effort. Conflict over Taiwan remains a risk
over the medium- and long-term and would have a significant global
economic impact. Tensions in the South China Sea, particularly
High
between the Philippines and China, have significantly increased and
pose a meaningful risk of miscalculation or accident.

The U.S. and China are engaged in a long-term, zero-sum technological

competition that is at the center of the U.S.-China relationship. They are
pursuing targeted decoupling, focused especially on advanced
technologies like AI, semiconductors, and quantum computing, as well
Technology as technologies with military application. In May, the U.S. hiked tariffs
decoupling on Chinese electric vehicles, and in July Europe implemented its own
between the provisional tariffs. The U.S. has launched investigations into frontier
Global
U.S. and China tech, sensitive bulk data, digitally connected vehicles, crane technology
technology
significantly and biotech. It is also preparing to implement the first-ever outbound
decoupling
accelerates in investment restrictions focused on key technologies, especially
scale and semiconductors and AI. We are watching for potential further action
scope. across a range of technoeconomic measures. China has responded to
date by investing in its own capabilities and objective of self-reliance. It
High
is considering retaliatory economic actions, particularly against
Europe. We expect ongoing tension and the development of parallel,
competing tech stacks as a result.

Russia’s invasion of Ukraine is the largest, most dangerous military

conflict in Europe since World War Two. The conflict has become a
battle between the two sides’ industrial bases, and Ukraine remains in a
The war in
vulnerable position. Recently approved additional military aid from the
Ukraine
U.S. will likely allow Ukraine to stabilize its situation and materially
Russia- becomes
improve its defenses this year, pointing to a continued war of attrition.
NATO protracted,
The G7 recently acted to free up additional support using the earnings
conflict raising the risk
on frozen Russian central bank assets. Russia is receiving significant
of escalation
military support from Iran and North Korea as well as major financial
beyond Ukraine.
backing and dual-use items from China. We see a ceasefire or
High diplomatic solution as unlikely in the near-term with the conflict likely
to continue into next year.

From the perspective of the markets and the global economy, the
situation in Gaza remains fairly contained – although the resulting
humanitarian crisis is catastrophic. However, there is still no agreement
Regional for a ceasefire in exchange for hostages, nor any plan to prepare for
conflict post-war governance and security in Gaza. Israeli military operations in
Gaza are likely to persist into next year as conflict with Hezbollah
escalates,
continues to escalate and displace citizens on both sides of the border.
threatening
Gulf Elsewhere, Iran-backed militants in Lebanon, Syria, Iraq and Yemen
energy
tensions continue to threaten Israeli and Western assets, including U.S. troops
infrastructure
and commercial shipping vessels. The fundamental conflict in the
and
Middle East is between Israel and the U.S. and Iran, as underscored by
increasing
the unprecedented and direct Iranian aerial attack on Israel in April.
volatility.
Neither side seeks all-out war. However, Iran has said it would now
retaliate directly against Israeli attacks in the region, heightening the
High risk of accidental – or intentional – escalation. Another potential source
of escalation is Iran’s recent steps to accelerate its nuclear capacity.

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Market attention
Risk Description since 2019 and Our view
likelihood

The threat of terrorism against U.S. interests is at an

extraordinarily high level. U.S. law enforcement and
intelligence agencies have cited violent extremists, lone actors
and the emergence of new terrorist hotspots as major areas to
A terror attack watch. The U.S. Department of Defense recently issued a rare
leads to heightened alert for U.S. military bases and personnel in
Major
significant Europe, and the FBI has warned Congress of terrorists
terror
loss of life and drawing inspiration from events abroad to attack the U.S. Al-
attack(s)
commercial Qaida and the Islamic State keep rebuilding their global reach,
disruption. showing increased motivation and capability to conduct
attacks abroad. The Sahel region is of particular concern as
military takeovers have threatened the West’s efforts to fight
High against terrorism. We see heightened risk of terrorism ahead
of the 2024 presidential election.

Market attention to cyber attacks jumped near all-time highs

earlier this year. Mounting geopolitical competition will likely
cause cyber attacks to increase in scope, scale and
sophistication, we think. There is emerging evidence state-
Cyber attacks
backed hackers have been infiltrating and pre-positioning
cause
malware in critical national infrastructure – with the intent to
sustained
Major cyber cause disruption and destruction in the outbreak of future
disruption to
attack(s) conflict. A recent hack against a cloud storage company
critical physical
could be one of the biggest-ever data breaches and
and digital
underscores the threat to cloud infrastructure. Surging
infrastructure.
ransomware attacks, especially in healthcare and critical
manufacturing, highlight the vulnerability of business
High
infrastructure. We see cyber activity increasing in conflict
zones and particularly around upcoming elections.

Emerging market (EM) economies have been boosted by

central bank rate cuts and resilient developed market (DM)
growth. Yet China’s challenged economic activity and the
Ripple effects long-term costs of fragmentation present risks to EM. We
from the expect divergence in EM outcomes and are watching a series
Emerging
Ukraine war of important EM elections in 2024 – and the U.S. election in
markets
severely stress November – as key signposts. While countries like India,
political
EM political Mexico and Vietnam are likely to benefit from supply chain
crisis
systems and diversification, others with substantial short-term debt
institutions. obligations like Argentina remain vulnerable despite
domestic policy adjustment. We worry about a lack of
Medium
international cooperation on debt relief and the impact of a
record number of global conflicts around the world.

North Korea is growing notably closer to Russia, to which it

has become a top arms supplier. This was underscored by
President Vladimir Putin’s June visit to Pyongyang for the
North Korea first time in two decades. Russia and North Korea signed a
pushes ahead strategic partnership agreement and signaled a deeper, more
North with its nuclear extensive defense relationship. In the meantime, North
Korea buildup and Korea’s nuclear program continues unabated. We see
conflict takes provocative increased risk of further provocation or even military action
actions such as as Kim looks to build leverage ahead of the U.S. elections. In
missile launches. January, Kim Jong Un renounced peaceful reunification with
South Korea as a key policy goal. In response, South Korea
Medium and Japan are bolstering their defenses and strengthening
ties with each other and the U.S.

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Market attention
Risk Description since 2019 and Our view
likelihood

The world is seeking to deliver on decarbonization

Developed ec commitments and energy security goals as damaging weather
and heat-related incidents increase in frequency and
onomies fail to
magnitude. Clean energy will increasingly become a source of
increase publi
geopolitical competition, we think, benefiting those who can
Climate policy c investment
control and access it. In the U.S., the IRA will help accelerate
gridlock or take action
the development and deployment of low-carbon technologies,
towards the
in our view. Countries may have to choose between cheap
energy
clean tech and more protectionist, security-oriented industrial
transition.
policy. We think this year’s U.S. election represents a pivotal
Medium point for the implementation of clean energy legislation.

Market attention to European fragmentation has increased

sharply since last fall. Europe remains largely united on key
issues: increasing European Union (EU) competitiveness,
building up its strategic autonomy, and supporting Ukraine.
Subdued Disagreements are centered on execution and financing.
economic growth Several issues could strain European cohesion going forward.
and persistent These include migration, which last year reached the highest
inflationary levels since 2 1 , and Europe’s approach to China. Revision
European
pressures amid of the EU Stability and Growth Pact fiscal rules following their
fragmentation
fragile energy suspension during COVID could also put some individual
security lead to a national governments into conflict with Brussels. Recent EU
populist parliamentary elections saw centrists retain power, with right-
resurgence. wing and anti-establishment parties gaining ground. In the
UK, the Labour Party won in a landslide. France’s
Low unprecedented election outcome could lead to a left-wing
coalition in parliament. See BlackRock Bulletins on the French
and UK results.

Sources: BlackRock Investment Institute. Views and data as of July 2024. Notes: The “risks” column lists the 10 key geopolitical risks that we track. The “description” column defines each risk.
“Attention score” reflects the BlackRock Geopolitical Risk Indicator (BGRI) for each risk. The BGRI measures the degree of the market’s attention to each risk, as reflected in brokerage reports and
financial media. See the "how it works" section on p.7 for details. The table is sorted by the “Likelihood” column which represents our fundamental assessment, based on BlackRock’s subject
matter experts, of the probability that each risk will be realized – either low, medium or high – in the near term. The “our view” column represents BlackRock’s most recent view on developments
related to each risk. This is not intended to be a forecast of future events or a guarantee of future results. This information should not be relied upon by the reader as research or investment
advice regarding any funds or security in particular. Individual portfolio managers for BlackRock may have opinions and/or make investment decisions that may, in certain respects, not be
consistent with the information contained herein.

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Geopolitical risk framework

BlackRock Geopolitical Risk Indicator
1.5
WHO declares
U.S. announces
COVID-19 a global
withdrawal from
pandemic
1 Iran deal
U.S. Russia
presidential invasion of
election Ukraine
BGRI Score

0.5
U.S.-China
Phase One
0 trade
agreement
announced
-0.5
U.S. announces
steel tariffs
-1
2018 2019 2020 2021 2022 2023 2024
Forward-looking estimates may not come to pass. Source: BlackRock Investment Institute, July 2024. Notes: The BlackRock Geopolitical Risk Indicator (BGRI) tracks the relative
frequency of brokerage reports (via Refinitiv) and financial news stories (Dow Jones News) associated with specific geopolitical risks. We adjust for whether the sentiment in the text
of articles is positive or negative, and then assign a score. This score reflects the level of market attention to each risk versus a five-year history. We assign a heavier weight to
brokerage reports than other media sources since we want to measure market attention to any particular risk, not public.

The BlackRock Geopolitical Risk Indicator aims to capture overall market attention to geopolitical risks, as the line chart
shows. The indicator is a simple average of our top-10 risks. Markets are most focused on the risk of Major terror attack(s),
Major cyber attack(s), and U.S.-China strategic competition.

We maintain a high Gulf tensions risk rating given escalation between Israel and Iran and the ongoing Israel-Hamas war.
We note upward pressure on our medium North Korea conflict risk rating due to deepening relations between Russia and
North Korea. And we highlight our European fragmentation risk in the wake of recent elections that saw right-wing and
anti-establishment parties gain traction. Market attention to our North Korea conflict risk is low. This risk could have an
outsized impact on markets.

Risk map
BlackRock Geopolitical market attention, market movement and likelihood
Likelihood:
Higher
High
Major terror Major Cyber attack(s) Medium
attack(s)
U.S. China strategic competition Low
Market attention

Emerging markets political crisis

European fragmentation

Global technology decoupling

Russia-NATO conflict
Gulf tensions

North Korea conflict

Climate policy gridlock

Lesser Greater
Market pricing

Forward-looking estimates may not come to pass. Source: BlackRock Investment Institute, July 2024. Notes: The vertical axis depicts the market attention to each of our top-10 risks,
as reflected in brokerage reports and financial media and measured by the BlackRock Geopolitical Risk Index (BGRI). The horizontal axis shows our estimate of the degree to which
asset prices have moved in accordance with our risk scenarios (horizontal axis). See the “How it works” section on p.6 for details. The color of the dots indicates our fundamental
assessment of the relative likelihood of the risk – low, medium or high, as per the legend. Some of the scenarios we envision do not have precedents – or only imperfect ones. The
scenarios are for illustrative purposes only and do not reflect all possible outcomes as geopolitical risks are ever-evolving. The chart is meant for illustrative purposes only. This
material represents an assessment of the market environment at a specific time and is not intended to be a forecast of future events or a guarantee of future results. This information
should not be relied upon by the reader as research or investment advice regarding any funds, strategy or security in particular.

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Key scenario variables

How to gauge the potential market impact of each of our top-1 risks? We have identified three key “scenario
variables” for each – or assets that we believe would be most sensitive to a realization of that risk. The chart
below shows the direction of our assumed price impact.

Direction of assumed
Risk Asset
price impact

Taiwanese dollar 
U.S.-China strategic competition Taiwanese equities 
China high yield 
Chinese yuan 
Global technology decoupling U.S. investment grade 
Asia ex-Japan electrical equipment 
Russian equities 
Russia-NATO conflict Russian ruble 
Brent crude 
Brent crude oil 
Gulf tensions VIX 
U.S. high yield credit 
Germany 10-year government bond 
Major terror attack(s) Japanese yen 
Europe airlines sector 
U.S. high yield utilities 
Major cyber attack(s) U.S. dollar 
U.S. utilities sector 
Latin America consumer staples sector 
Emerging markets political crisis Emerging vs. developed equities 
Brazil debt 
Japanese yen 
North Korea conflict Korean won 
Korean equities 
U.S. building products sector 
Climate policy gridlock U.S. construction materials sector 
U.S. utilities 
EMEA hotels & leisure 
European fragmentation Italy 10-year government bond 
Russian ruble 

Source: BlackRock Investment Institute, with data from BlackRock’s Aladdin Portfolio Risk Tools application, July 2022. Notes: The table depicts the three assets that we see as key
variables for each of our top-10 geopolitical risks – as well as the direction of the assumed shocks for each in the event of the risk materializing. The up arrow indicates a rise in prices
(corresponding to a decline in yields for bonds); the down arrow indicates a fall in prices. Our analysis is based on similar historical events and current market conditions such as
volatility and cross-asset correlations. See the “implied stress testing framework” section of the 2018 paper Market-Driven Scenarios: An Approach for Plausible Scenario
Construction for details. For illustrative purposes only. The scenarios are for illustrative purposes only and do not reflect all possible outcomes as geopolitical risks are ever-evolving.
This material represents an assessment of the market environment at a specific time and is not intended to be a forecast of future events or a guarantee of future results. This
information should not be relied upon by the reader as research or investment advice regarding any funds, strategy or security in particular.

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How it works
The quantitative components of our geopolitical risk dashboard incorporate two different measures of risk: the first
based on the market attention to risk events, the second on the market movement related to these events.
Market attention
The BlackRock Geopolitical Risk Indicator (BGRI) tracks the relative frequency of brokerage reports (via LSEG) and
financial news stories (Dow Jones News) associated with specific geopolitical risks. We adjust for whether the sentiment
in the text of articles is positive or negative, and then assign a score. This score reflects the level of market attention to
each risk versus a five-year history. We use a shorter historical window for our COVID-19 risk due to its limited age. We
assign a heavier weight to brokerage reports than other media sources since we want to measure market attention to
any particular risk, not public.
Our updated methodology improves upon traditional “text mining” approaches that search articles for predetermined
key words associated with each risk. Instead, we take a big data approach based on machine-learning. Huge advances in
computing power now make it possible to use language models based on neural networks. These help us sift through
vast data sets to estimate the relevance of every sentence in an article to the geopolitical risks we measure.
How does it work? First we augment a pre-trained language model with broad geopolitical content and articles
representative of each individual risk we track. The fine-tuned language model then focuses on two tasks when trawling
though millions of brokerage reports and financial news stories:
• classifying the relevance of each sentence to the individual geopolitical risk to generate an attention score
• classifying the sentiment of each sentence to produce a sentiment score
The attention and sentiment scores are aggregated to produce a composite geopolitical risk score. A zero score
represents the average BGRI level over its history. A score of one means the BGRI level is one standard deviation above
its historical average, implying above-average market attention to the risk. We weigh recent readings more heavily in
calculating the average. The level of the BGRIs changes slowly over time even if market attention remains constant. This
is to reflect the concept that a consistently high level of market attention eventually becomes “normal.”
Our language model helps provide more nuanced analysis of the relevance of a given article than traditional methods
would allow. Example: Consider an analyst report with boilerplate language at the end listing a variety of different
geopolitical risks. A simple keyword-based approach may suggest the article is more relevant than it really is; our new
machine learning approach seeks to do a better job at adjusting for the context of the sentences – and determining their
true relevance to the risk at hand.
Market movement
In the market movement measure, we use Market-Driven Scenarios (MDS) associated with each geopolitical risk event
as a baseline for how market prices would respond to the realization of the risk event.
Our MDS framework forms the basis for our scenarios and estimates of their potential one-month impact on global
assets. The first step is a precise definition of our scenarios – and well-defined catalysts (or escalation triggers) for their
occurrence. We then use an econometric framework to translate the various scenario outcomes into plausible shocks to
a global set of market indexes and risk factors.
The size of the shocks is calibrated by various techniques, including analysis of historical periods that resemble the risk
scenario. Recent historical parallels are assigned greater weight. Some of the scenarios we envision do not have
precedents – and many have only imperfect ones. This is why we integrate the views of BlackRock’s experts in
geopolitical risk, portfolio management, and Risk and Quantitative Analysis into our framework. See the 2018 paper
Market Driven Scenarios: An Approach for Plausible Scenario Construction for details. MDS are for illustrative purposes
only and do not reflect all possible outcomes as geopolitical risks are ever-evolving.
We then compile a market movement index for each risk.* This is composed of two parts:
1. Similarity: This measures how “similar” the current market environment is to our expectation of what it would look
like in the event the particular MDS was realized. We focus on trailing one-month returns of the relevant MDS
assets.
2. Magnitude: This measures the magnitude of the trailing one-month returns of the relevant MDS assets.
These two measures are combined to create an index that works as follows:
• A value of 1 would means that asset prices reacted in an identical way as our MDS indicated.
• A value of zero would indicate that the pattern of asset prices bears no resemblance at all to what the MDS for a
particular risk would indicate.
• A value of -1 would indicate that asset prices are moving in the opposite direction to what the MDS would indicate.
Markets are effectively betting against the risk.
*This material represents an assessment of the market environment at a specific time and is not intended to be a forecast of future events
or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice regarding any
funds, strategy or security in particular. The scenarios are for illustrative purposes only and do not reflect all possible outcomes as
geopolitical risks are ever-evolving.

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BlackRock Investment Institute

The BlackRock Investment Institute (BII) leverages the firm’s expertise and generates proprietary research to provide
insights on the global economy, markets, geopolitics and long-term asset allocation – all to help our clients and
portfolio managers navigate financial markets. BII offers strategic and tactical market views, publications and digital
tools that are underpinned by proprietary research.

General disclosure: This material is intended for information purposes only, and does not constitute investment advice, a recommendation or an offer or solicitation to purchase or sell any securities to any
person in any jurisdiction in which an offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction. This material may contain estimates and forward-looking statements,
which may include forecasts and do not represent a guarantee of future performance. This information is not intended to be complete or exhaustive and no representations or warranties, either express or
implied, are made regarding the accuracy or completeness of the information contained herein. The opinions expressed are as of July 2024 and are subject to change without notice. Reliance upon
information in this material is at the sole discretion of the reader. Investing involves risks.

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