Marvin Zonis from University of Chicago Discusses Global Risk at RMC

The keynote speaker at the CBOE Risk Management Conference this morning was professor Marvin Zonis from the University of Chicago.   The title of his talk was New Insights in Geopolitical Risk:  Examining Geopolitical Risk Hotspots and the Implications for Trading Strategies and Risk Management.

The talk began with noting that to get political instability you need the following factors – Grievance + Anger + Leadership + Ideology.   This seems to be a common theme behind any geopolitical flare up in the world.  Also, it seems many of the grievances are rooted in lack of economic growth or a disparity of the distribution of wealth.

The BRICS (Brazil, Russia, India, China, and South Africa) countries have high levels of corruption according to Transparency International which makes it difficult to do business there, even for the locals.  He cites that the price of oil is high in dollar terms and we seem to be use to $100 oil.  However, currency weakness in emerging markets results in even higher oil prices for those countries.  Also, citizens of emerging countries continue to spend a larger portion of their income on food.   Finally, demographically emerging markets have huge populations of very young people and children which can cause economic stresses.

23% of world’s population lives in Islamic countries – 8% of world’s GDP is in these countries – the result is a clash of civilizations inside the Islamic world.  Zonis believes there is a chance for a deal between the US and Iran, but the US President and the Iranian President are both under divergent political pressures which make it difficult.

With respect to Ukraine it was noted that the economy was under pressure which lead to the current situation.  Zonis second biggest risk to the geopolitical environment is Russia and there are other counties that Putin may have his eye on to add to Russia.

He commented briefly on China the government is offering all opportunities to people except for freedom.  Also, as in Russia, there is also militarism growing in China.  There may be a belief that conflict with the US is inevitable.

Within the United States the President and Congress are both very unpopular.  He stated that public opinion is the source of a lack of bipartisan partnership and also public opinion leans toward the US staying out of international conflicts.  The American system has seen an increase in productivity while labor has not been rewarded.  The only area where there has been wage growth has been for individuals with advanced degrees.

Zonis finished up by listing out geopolitical hotspots –

Developing situation in Ukraine
Potential Japan – China war
Potential Korean War
The disintegration of Pakistan
Potential conflict between Iran and Israel
Salafi rule in Egypt Syria and Turkey
An economic hard landing in China

Continued US political paralysis through at least 2016

In summary Zonis believes we are in an age of major political risk and the market may not be fully anticipating the potential for future volatility.   He also was somewhat bullish on the US economy.


Marvin Zonis can be followed at his website –