(27 August 2024 – United States) Citi Research has revised its Geoeconomic Risk Premium (GRP) model in response to escalating geopolitical tensions and increasingly uncertain economic policy.
Citi’s proprietary GRP model, which gauges the discount rate applied to global equities due to geopolitical and economic risks, has recently recorded a sharp jump.
Although the Global Geopolitical Risk Index has recently decreased, the Economic Policy Uncertainty Index has ticked higher, especially in Europe. This infers increasing apprehension about economic stability, driven by electoral uncertainties and a potential US economic “hard landing”.
Sensitivity to geo-economic risks differs markedly by market. Switzerland stands out as a safe haven, demonstrating resilience to both economic uncertainty and geopolitical risks. In contrast, Spain and Italy are more susceptible to economic uncertainties, while Germany and France face greater exposure to geopolitical risks. The UK presents a distinctive profile, with negative exposure to economic uncertainties yet benefiting from geopolitical risks due to a prominent energy sector.
“Geopolitical risks are back in focus amid escalating tensions in the Middle East and Ukraine, as well as via the upcoming US presidential election and a potential US economic slowdown” Citi Research Analysts commented.