As tensions and rhetoric around North Korea have escalated over the past few months, many clients have asked us how we believe this translates to market risk. This question and similar ones about geopolitics are presently more common than at any time since the financial crisis. With the backdrop of elevated international tensions, we find this an opportune time to share our perspective on the market risks presented by macro and geopolitical incidents.

Diversification, as a fundamental component of prudent investment management, has tested the patience of investors over the most recent bull market in US equities. International equities have trailed by a significant margin in relative performance since late 2011, weighing on the returns of a globally diversified portfolio versus a US only investment strategy. In this piece, we take a longer view of global diversification and compare the current valuations of US and international markets.

Brexit, a contraction of the words “British exit,” refers to the June 23, 2016 referendum by voters in the United Kingdom to leave the European Union (“EU”). The surprising outcome has injected uncertainty into financial markets, and triggered some major moves in currencies, bonds, and equity prices. In this paper we review and comment on the economic and political implications to this separation and financial markets.