Five Black Swan Events Beyond Coronavirus

3 Feb, 2020 09:41
source: Singularity Financial

It’s already clear that the coronavirus’ impact, though too early to fully measure, will be significant on Chinese and global supply chains, markets and economies. So even in a heavy news week during which the United Kingdom left the European Union, the United States announced a new Mideast peace plan, and the Senate advanced its impeachment trial of President Trump, none of that beats the potential of coronavirus for global impact.

An recent article posted by Barron titled “Beyong Coronavirus: 5 Black Swans That Could Imperil Financial Markets“, suggested five low-probability events by February’s Bank Credit Analyst Geopolitical Strategy team. And the coronavirus isn’t among them.

Here are the 5 black swans:

1. The biggest danger is a potential miscue by either President Trump or Chinese President Xi. China’s debt-fueled bubble could burst as a result of country’s battle against systemic risk, which has been compromised by an easing in credit conditions to stabilize the economy.

2. Taiwan also holds the potential for sparking conflict, especially because its recent election “has injected new vitality in this already underrated geopolitical risk,” the Bank Credit Analyst continues.

3. European refugee crisis could reheat, with increased migration resulting from greater unrest in Iran’s sphere of influence.

4. Russia could be vulnerable to domestic unrest, even as it pursues its foreign policy objectives, including interfering with U.S. elections and punishing regional adversaries.

5. Finally, BCA warns, an upsurge of social unrest in the U.S. also is a looming risk.

The risks that BCA reckons the market is “seriously underpricing” have probabilities of 10%-15%—significantly greater than the single-digit probability assigned to them by the consensus. But some of the risks are so obscure that BCA’s crew can’t say how to price them.