Recently, as global investors are about to face an increasingly divided Europe, an increasingly isolationist United States, and a difficult prospect of slowing global trade flows, concerns surrounding geopolitical factors have gradually pushed global stock markets from record highs. In this year's "election year" that has just passed halfway, more unknown risks may still lie ahead
In multiple surveys released this month on market risk factors, geopolitical risks are reaching their peak with a rare and rapid momentum.
The Bank of America fund manager survey released in mid month shows that geopolitical risks have surpassed high inflation and become the industry's recognized biggest tail risk among fund managers. Similar changes also appeared in a latest survey released by Jing Shun on Monday - as inflation recedes and nearly half of the world's population votes for new leaders this year, geopolitical tensions have become a focus of global investors' attention.
This year is an election year, "said Rod Ringrow, the head of the official agency department at Jingshun." In both the short and long term, geopolitical impacts have surpassed inflation
In fact, people's concerns about geopolitical risks are no longer just about shouting. After experiencing a strong rally earlier this year, funds are hastily withdrawing from some potential geopolitical risk flashpoints, such as global chip stocks, and turning to safe havens like gold: gold prices just hit a record high last week.
Some market participants are currently concerned that the prosperous period of peace and free trade may have ended, and the next period seems to be becoming increasingly difficult.
This year, nearly half of the world's regions have held elections, and the results so far have proven the helplessness behind the shift in pessimistic sentiment: the French political arena has fallen into a "left-right struggle", while the UK has welcomed a left-wing majority party. In just eight days, the US presidential election has once again stirred up waves of turmoil: the election leader Trump has been attacked, and President Biden announced his withdrawal from the race less than four months before election day
The market is constantly paying attention to the above news, and geopolitics has become the focus of attention for all investors.
Erik Knutzen, Multi Asset Investment Officer at Neuberger Berman, said, "This (geopolitical risk) is definitely one of the most important considerations in our work throughout the year. We are assessing the overall risk level of our investment portfolio based on this
The company manages assets worth up to 481 billion US dollars.
In an environment of increasing geopolitical risks, you may want to lower your risk exposure, "Knutzen said.
Everyone is looking for a safe haven
Prashant Kothaari, CEO of Alpha Alternatives, said, "All of Trump's policies may have inflationary undertones - whether it's tax cuts, immigration, or leading manufacturing back to the United States, so the US dollar is likely to depreciate relative to gold
Meanwhile, after Trump's vague promises to the chip industry, TSMC's market value evaporated by over $100 billion in less than a week. Norman Villamin, Chief Strategist of Union Bancaire Priv é e, stated that; quot; The resurgence of such geopolitical risks has actually weakened people's enthusiasm for trading artificial intelligence (AI) hardware stocks& amp;quot;
As investment managers become increasingly convinced that the United States will cut interest rates in September and the Republican Party will take over the White House, geopolitical concerns are also permeating people's long-term thinking about the potential and risks of the global economy.
Currently, there are indications that past high interest rates have begun to have a negative impact on the economy this year, with some economies, including the United States, experiencing a slowdown in economic growth. In the Middle East and Eastern Europe, major powers are also on the opposite side of the chessboard, and wars are still ongoing.
David Bianco, Chief Investment Officer of DWS Americas, stated, "We believe that tensions will continue to escalate and may have policy consequences lasting for several years." He mentioned that energy and defense stocks, as well as commodities including copper and uranium, will be the focus of investment going forward.
In some high-risk areas, the performance of the French stock market has still lagged behind the overall European stock market recently, and the French treasury bond bond has recorded the largest discount compared with the German treasury bond bond in more than a decade. Because the market is worried that the divided government of the country will be suspicious of the euro, and it is difficult to repair the financial budget.
We are reducing our holdings of French and Italian bonds, and as their respective governments negotiate to lower budget deficits, there will be political noise, "said David Zahn, European fixed income manager at Franklin Templeton Fund
On the US stock market side, although the recent sell-off is not enough to trigger panic - the S&P 500 index has only fallen by about 3% from its historical high, many market participants still believe that this is a healthy correction and a rethinking of how to trade political risks. However, it is worth noting that the fear index VIX, which measures the volatility of the US stock market, has also shown a significant increase.
Geopolitics has never been the main focus of financial markets before, especially for the stock market, where interest rates and profit growth have always been the focus, "said Matt Sherwood, head of multi asset investment strategy at Perpetual in Sydney. But geopolitics is the kind of factor that can become a major left tail event once triggered. Therefore, what investors need is a low-cost diversification strategy that can provide both downside protection and upside potential
The left tail event refers to an event with a very low probability of occurrence, but once it occurs, it will cause extremely serious losses.
Pankaj Agarwal, a portfolio manager at AT Capital, a family office in Singapore, is currently hedging risks by reducing exposure to spot stocks and purchasing index call option spreads. This strategy can limit returns but also limit losses. Others are readjusting their expectations to prepare for a future with even more "stingy" returns.
Michael Rosen, Chief Investment Officer of Angeles Investments, said, "Over the past 30 years, investors have benefited from the greatest era of globalization and geopolitical stability. But now, a new era of higher risk has begun