Top 15 extreme risks cited by the Thinking Ahead Institute

Global temperature change, global trade collapse and cyber warfare are the three biggest risks for global economic growth and asset returns, according to the Thinking Ahead Institute’s (TAI) ‘Extreme risks 2019 report and ranking’ report.

Global temperature change took the top spot from third place in the 2013 ranking, while collapse of global trade jumped up two spots due to fears of protectionism.

Cyber warfare’s third position was due to the ever-interconnected world being at risk, as well as the increased risk of the internet to be weaponised.

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Along with cyber warfare, abandonment of fiat currency and biodiversity collapse were new additions into the ranking, which replaced deflation, insurance crisis and terrorism.

The full 15 expanded to resource scarcity, currency crisis, depression, infrastructure failure, banking crisis, sovereign default, stagnation, biodiversity collapse, health progress backfire, nuclear contamination, abandonment of fiat money and extreme longevity.

The report suggested three hedging strategies: hold cash, derivatives and hold a negatively-correlated asset.

Tim Hodgson, head of the Thinking Ahead Group, said the trend saw non-financial extreme risks emerging ahead of traditional financial risks.

“Global temperature change becomes the highest ranked risk due to our assessment of higher likelihood coupled with significant impact – in the extreme this would mean mass extinction,” Hodgson said.

To navigate through this complex world, we suggest investors need to be open-minded, avoid concentrated risks, be sensitive to early warning signs, constantly adapt and always prepare for the worst.”

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