# Markets pricing some geopolitics, but risk premia can grow further -Goldman
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2022-02-22
Category: NEWS
Category URL: https://financedigest.com/category/news
Meta Title: Goldman Sachs: Global Markets Brace for Geopolitical Risks
Meta Description: Goldman Sachs analysts caution that markets are currently factoring in geopolitical risks, but premiums may increase if conflict escalates between Russia and
URL: https://financedigest.com/markets-pricing-some-geopolitics-but-risk-premia-can-grow-further-goldmanhtml

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By Joice Alves

LONDON (Reuters) -Global markets are already pricing chunky geopolitical risks, but there is scope for risk premia to rise further across all sectors, if a conflict breaks out between Russia and Ukraine, Goldman Sachs strategists said in a note on Monday.

Current market levels imply a 5% discount is already priced into U.S. stocks, while [European stocks](https://www.financedigest.com/european-stocks-hit-six-week-high-on-hopes-for-rate-hike-slowdown.html "European stocks hit six-week high on hopes for rate hike slowdown") carry an 8% geo-political discount, Goldman wrote. It estimated the U.S. 10-year Treasury discount at 25 basis points and 2% on the euro.

It said gold was trading at a 5% premium.

Goldman Sachs strategists said that while this discount would evaporate if tensions ease, a flare-up would [boost geopolitical risk](https://www.financedigest.com/dollar-soft-as-china-reopening-hopes-boost-risk-sentiment.html "Dollar soft as China reopening hopes boost risk sentiment") premia further. They based their forecasts for [global market](https://www.financedigest.com/theresa-may-brexit-and-risk-and-safe-assets-a-snapshot-of-global-financial-markets.html "Theresa May, Brexit and risk and safe assets: A snapshot of global financial markets") falls on how much the rouble would depreciate.

On that basis, the [rouble is still more than 10% away from its maximum undervaluation level of the past](https://www.financedigest.com/rouble-falls-past-61-vs-dollar-as-conversion-of-depository-receipts-begins.html "Rouble falls past 61 vs dollar as conversion of depository receipts begins") two decades,” analysts Dominic Wilson, Ian Tomb and Kamakshya Trivedi told clients.

This is likely to be a conservative benchmark, however, given that this past undervaluation came in 2014/15 at a time of collapsing [oil prices](https://www.financedigest.com/oil-prices-stable-heading-for-weekly-gain.html "Oil prices stable, heading for weekly gain") and weak external balances.

In that scenario, U.S. stocks would [fall](https://www.financedigest.com/oil-dips-as-potential-fed-rate-hike-overshadows-falling-stocks.html "Oil dips as potential Fed rate hike overshadows falling stocks") more than 6% and European stocks decline more than 9%, the U.S. [investment bank](https://www.financedigest.com/hsbc-appoints-new-markets-head-amid-wider-investment-bank-reshuffle.html "HSBC appoints new markets head amid wider investment bank reshuffle") said.

Peter Kinsella, global head of FX strategy at UBP, agreed that the [market has already priced](https://www.financedigest.com/german-residential-property-market-faces-risk-of-price-drop-diw-study.html "German residential property market faces risk of price drop – DIW study") in a certain deterioration in the situation. “The surprise element isn’t there to the extent it was some time ago”.

Given where the [oil price](https://www.financedigest.com/oil-prices-rise-on-u-s-drawdown-chinese-fears-weigh.html "Oil prices rise on U.S. drawdown, Chinese fears weigh") is, the rouble should be 65-66 versus the dollar, but it is currently around 79 per dollar, while European equities too are pricing “an awful lot”, he said.

(Reporting by Joice Alves, additional reporting by Sujata Rao; Writing by Saikat Chatterjee; Editing by Hugh Lawson)


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