Second month of geopolitical risk may impact emerging economies harder

• RBI study shows geo-political risks have a significant negative impact on stock, foreign exchange markets, and credit spread in emerging economies.

• A 1 percentage point difference in the Geo-Political Risk (GPR) index leads to a 0.25 pp decline in stock markets, a 0.16 pp depreciation of currencies, and a 1 pp slide in credit spreads.

• The study found that a 1 pp increase in geopolitical risk resulted in stock market losses by 0.64 pp, currency depreciation by 0.32 pp, and credit spread worsening by 1.2 pp.

• The study suggests that repeated geopolitical shocks persist due to the persistence of the turmoil and uncertainty.