Tags: El-Erian | investors | geopolitical | risk

El-Erian: Investors May Be Minimizing Geopolitical Risk at Their Peril

By    |   Monday, 24 March 2014 01:33 PM


Financial markets have essentially shrugged off Russia's intervention in the Ukraine, despite the conflict it has set off between Russia and the West, notes Mohamed El-Erian, former CEO of Pimco.

Traders have shrugged off geopolitical turmoil elsewhere in the world too, but the relaxed attitude may not last, he writes in The Financial Times.

"While each geopolitical shock has been small on a standalone basis, in aggregate they are starting to affect a more meaningful part of the global economy," says El-Erian, now chief economic adviser to Allianz.

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"And few, if any, can be resolved easily. Meanwhile, leaders in Europe and the U.S. will come under increasing domestic pressure to act more forcefully externally, weakening the circuit breakers" against a wider conflict.

Global diplomacy is unlikely to solve the geopolitical problems, El-Erian says. National political conflict is weakening multilateral institutions, blunting their effectiveness in dealing with these issues, he writes.

"Underlying geopolitical tensions around the world have been gradually building towards a tipping point. Should this continue, it would quickly become evident that many markets are underpricing geopolitical risk."

However, not everyone agrees with El-Erian.

"There are always bad things going on in the world, but they don’t all matter to the ultimate direction of markets," Douglas Coté, chief market strategist at ING U.S. Investment Management, told the Associated Press.

"The only thing that matters is the following: corporate earnings, manufacturing and the consumer. And they’ve all been solid."

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InvestingAnalysis
Financial markets have essentially shrugged off Russia's intervention in the Ukraine, despite the conflict it has set off between Russia and the West, notes Mohamed El-Erian, former CEO of Pimco.
El-Erian,investors,geopolitical,risk
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2014-33-24
Monday, 24 March 2014 01:33 PM
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