Political Uncertainty Looms as Unpriced Risk in Markets
Geopolitical turbulence remains the most underappreciated threat to financial stability. Unlike economic indicators, political shocks—regime changes, nationalizations, or sanctions—arrive without warning, triggering cascading selloffs across asset classes. Investors chronically misprice these binary risks until it's too late.
The playbook for institutional players involves derivatives hedging against tail risks. Sophisticated instruments like volatility swaps or out-of-the-money options gain traction during election cycles or trade wars. Yet most portfolios remain dangerously exposed.
Emerging markets face acute vulnerability. Capital fleets at the first hint of expropriation or currency controls. Even developed markets aren't immune—witness the gilt market meltdown during the UK's mini-budget crisis.
