How Afghanistan woes raise risk level even as global financial
Financial markets have been largely unmoved by developments in Afghanistan, but the chaotic U.S. exit from the country is heightening underlying geopolitical risks, and, according to some analysts, potentially clouding the outlook for President Joe Biden’s legislative agenda.
“When it comes to markets, there continues to be basically no day-to-day relationship between U.S. geopolitical risks and equity markets” as a result of the situation in Afghanistan, said Mark Y. Rosenberg, chief executive officer of GeoQuant, a research firm that analyzes geopolitical risk.
But the outside risk of a terrorist attack or other major geopolitical incident has risen, according to GeoQuant’s data-based metrics.
“It does make the ever present fat-tail risk of a major terrorist attack on the U.S. fatter,” Rosenberg said, in a phone interview.
Put simply, tail risk refers to the prospect of an event that’s unlikely but would trigger a significantly outsize move in financial markets. Some financial professionals define a tail-risk event as one that produces market moves that are three standard deviations beyond the mean.
The Taliban had harbored al Qaeda before the terrorist organization’s Sept. 11, 2001, attacks on the U.S. That prompted the U.S. invasion of Afghanistan and the toppling of the Taliban. Reports have said the Taliban freed al Qaeda fighters from prisons as they took control of the country this month, according to The Wall Street Journal.
United Nations officials have said that al Qaeda operations are still present in some areas, the Journal reported, while U.S. intelligence assessments said the organization could reconstitute itself in Afghanistan 18 months to two years after a U.S. withdrawal. U.S. Secretary of State Antony Blinken has said the capacity of al Qaeda members in Afghanistan to attack the U.S. has been diminished.
But would the risk picture be any different had the U.S. exit proceeded in an orderly fashion, in keeping with the Biden administration’s timetable? Rosenberg said that had the Afghan army been able to better withstand the Taliban assault, “it’s reasonable to assume those forces would have been a better check on terrorist activity from Afghanistan. So at the very least, the perception of that risk would have been blunted,” he said.
Read: Will Taliban takeover of Afghanistan tarnish the U.S. dollar and other assets?
The Biden administration was discussing with allies a potential extension of the Aug. 31 deadline for withdrawing from Afghanistan as they attempt to evacuate thousands of people from the country, The Wall Street Journal reported.
Stocks rose Monday, with the Nasdaq Composite
COMP,
finishing at a record and the Dow Jones Industrial Average
DJIA,
and S&P 500
SPX,
logging solid gains. The dollar lost ground Monday, but rallied last week, with the ICE U.S….
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