The report also found that while the volatility of geopolitics is of concern in global markets, investors have become less concerned about risks such as inflation and recession fears.
The survey highlights several geopolitical flashpoints. Around 48% of the investors surveyed identified the Taiwan Strait and South China Sea as the risk that is most likely to impact global markets in the following 24 months, given its link to asset prices. Some 27% of investors noted that the military conflict in the Middle East posed the greatest risk. Additionally, the military conflict in Ukraine continues to be a key risk for investors, especially in Europe.
Further to the report, 56% of investors worldwide say that the result of this year’s elections is a point of consideration in their portfolio decisions. While 29% of investors globally have held more cash given the geopolitical uncertainty, this was most evident in the US, where 41% of investors said they had moved into cash to mitigate risk. Majority – or 55% – of investors worldwide have also said that they have plans to increase cash allocations leading up to the elections.
Despite the increased sensitivity to geopolitical risk, investors are prepared to take on risk within their portfolios, indicating that institutions are looking long-term and viewing the volatility as an opportunity. One-third of the institutional investors surveyed noted that they plan to undertake an aggressive portfolio strategy by the end of 2025, in comparison to approximately one-quarter who are currently aggressive in risk tolerance.
See also: Trade policy turmoil raises recession risk, but long-term equity outlook holds up: Capital Group
According to the survey, approximately three-quarters of institutional investors have noted that their portfolios are moderately or well prepared for any consequences arising from major elections this year, showing confidence that policy outcomes in the US and other countries will not be a curveball. At least two-thirds had the same answer when asked about the investment impacts of trade and regulatory policies, disputes, global debt level and supply-chain disruptions.
However, 48% of those surveyed felt that there are currently too many geopolitical risks to effectively manage the potential impact this would have on their portfolios. The report highlights several ways investors can mitigate geopolitical risk and seek investment opportunities, including data centres and alternative energy.
“Some countries or sectors will benefit from trade diversion, and others will be impacted negatively. One way to mitigate these risks is by identifying the pockets of value. And because there are going to be winners and losers, don’t put all of your eggs in one basket,” says Katharine Neiss, chief European economist in PGIM Fixed Income.
