The World Economic Forum (WEF) Global Risk Report serves as a useful guide on the broader set of risks that may impact the world over the next year. This report is important because it moves outside the narrow focus of finance and looks at a broader set of risks. Nowhere are economic issues in the top five for impact or likelihood in 2017. This is a big change from the 2007-2010 period. This is the first time economic issues are neither in the likelihood or impact top five. The dominant category is environmental which suggests that commodities markets are most likely to have the immediate impact if there is a shock. Extreme weather and natural disasters have the highest impact and likelihood combination from WEF analysis
What the WEF report highlights is that diversification is still the best strategy for any investor. This strategy is especially useful if one cannot isolate a potential economic shock. Be prepared for the unexpected and for economic spillover from events that may not seem to be immediately linked to financial markets.
