Markets are so fixated on inflation that they could miss the next big blow, says BlackRock

Markets are so fixated on inflation that they could miss the next big blow, says BlackRock

While investors are preoccupied with rising prices, a flare-up in US-China tension could surprise investors, BlackRock warned.

The BlackRock Investment Institute said in a report Monday that its own geopolitical risk indicator has fallen to its lowest level in four years as investors focus more on inflation and economic recovery than geopolitics.

This means shifting focus away from US-China trade tensions or a nuclear attack on North Korea, both of which have rocked markets in recent years.

One of the biggest risks that markets may overlook is the disconnection or “decoupling” of the world’s two largest technological economies. Analysts noted that US President Joe Biden has continued his predecessor’s tough stance on China “with an emphasis on critical technologies” while Beijing is prioritizing technology self-reliance.

The two measures are then combined to create an index. A positive value near one indicates that the market performance is in line with the model’s forecast for responding to geopolitical risk. A negative value indicates that markets are moving in a direction opposite to what the model predicts.

While BlackRock didn’t reveal the exact level of the index, the investment firm announced on Monday that the indicator has turned negative this year for the first time since 2017 – meaning that investors’ focus on geopolitical risk is below the average of the last four Years has fallen.

Global stock indices have risen this year as major economies seek to raise vaccination rates and get back to business. The CBOE Volatility Index, or the VIX, a measure of fear in the US market, has fallen about 19% so far this year.

In the short term, BlackRock said it was justified for markets to focus more on the economic recovery from the coronavirus pandemic and the inflation outlook.

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