Geopolitics and election-related uncertainty are the largest concerns of state administrators, in accordance with a Opinion poll by investment firm Invesco, released on Monday. More than 80 percent of managers cite geopolitical tensions as the largest short-term risk and fragmentation and protectionism as the largest long-term risk, in accordance with the firm’s Global Sovereign Asset Management report, which surveyed central banks and sovereign wealth funds with about $22 trillion in assets under management.
Inflation was the most important topic of dialogue amongst central bankers and sovereign wealth fund managers last 12 months, with over 80 percent of them citing rising prices as their biggest short-term concern.
A series of elections this 12 months, including the upcoming US presidential election in November, are adding to this geopolitical uncertainty. “Elections are a real unknown for the global economy and could also have implications for the inflation outlook,” said a Western central banker quoted within the Invesco report.
A more complicated geopolitical environment could complicate what was an overall good 12 months for sovereign investors. More than half of investors exceeded their 2023 return targets, in accordance with Invesco, in comparison with lower than 40% the 12 months before. Average returns rose to 7.2% last 12 months, in comparison with a 3.5% decline in 2022.
But there are also opportunities. More than half of the participants within the Invesco survey imagine that offer chain diversification will help emerging markets. Latin America “could benefit from the ongoing redesign of supply chains,” an Asian sovereign wealth fund told Invesco.
Government investors are also turning to gold, which has traditionally been a protected investment. More than half of central bankers consider gold more attractive as a “non-political investment”, in accordance with Invesco. Bankers are concerned that foreign exchange reserves at the moment are getting used as a weapon and that there’s a risk of sanctions and confiscations.
Gold is a “confidence-building asset” and a “hedge against the militarization of currencies,” an Asian central banker told Invesco.
Electoral uncertainty
Unexpected election results this 12 months have already impacted the markets.
Indian stock markets briefly plunged when Indian Prime Minister Narendra Modi didn’t secure a parliamentary majority, forcing him to work with other parties to push through his pro-business agenda. The NIFTY 50, which tracks the 50 largest firms listed on the Indian stock exchange, felling 6% when the outcomes were announced in early June.
French markets reverse declines after the Rassemblement National, a far-right party, failed to realize a majority in parliament within the last elections.
Investors are also closely monitoring developments ahead of the US presidential election in November.
On Sunday, President Joe Biden announced that he wouldn’t accept the Democratic Party’s presidential nomination and endorsed Vice President Kamala Harris within the race to defeat former President Donald Trump in November.
Analysts are divided about what this latest uncertainty means for investors and the “Trump trade,” or about an investment strategy that focuses on sectors, firms and countries which might be prone to profit from Trump’s economic and foreign policies.
“There was a lot of confidence that Trump would win, and the markets are not going to like this new uncertainty,” said Gene Munster, co-founder and managing partner of Deepwater Asset Management. Bloomberg.
Gold prices angular Following Biden’s announcement, the US dollar rose barely in early Asian trading after which weakened.
