It is unlikely that markets will be able to ignore the overall increase in developed-market political risk. As such, many volatility measures, with the notable exception of extreme tail (or plunge) protection, remain too low. After all, the effects of too many years of economic growth that is too feeble and insufficiently inclusive have fueled a combination of political anger, distrust of institutions and loss of confidence in expert opinion, whether formed in the public or private sectors. But the developed-markets' rule of law, self-interest -- even if not of the most enlightened variety -- and longstanding systems of checks and balances are likely to act as constraining forces that limit the likelihood of a tip into an emerging markets-like pricing regime.
Mohamed A. El-Erian is a Bloomberg View columnist. He is the chief economic adviser at Allianz SE and chairman of the President’s Global Development Council, and he was chief executive and co-chief investment officer of Pimco.
This column was provided by Bloomberg News.