Geopolitical risk giveth and taketh away

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25/09/2017

The biggest geopolitical risk facing investment managers in the next three to five years is the global spread of populism, but market dislocations could also result in buying opportunities, a panel heard.

Speaking at the IMCA Annual Conference in Sydney, MFS chief executive and chief investment officer Michael Roberge said any divergence from pro-growth policies could have ramifications for portfolios.

“To me [the biggest risk in the next three to five years] is the return to populism on a global scale,” he said. “[Trump and Brexit] are reactions to income inequality and lack of opportunity a big class of the population feels in many countries around the world, and technology is going to continue to disrupt a number of industries.”

Roberge said US Senator Bernie Sanders, who challenged Hillary Clinton for the Democratic nomination in the last presidential election, shrank the economy by touting policies such as universal healthcare and stressed that an elected official with a slightly protectionist bent could do more significant damage to growth.

Brandywine Global Investment Management director Tad Fetter said political uprisings and nationalist tendencies posed risks, but added the current global political environment might offer opportunities for managers, too.

“What we’re starting to do now is take advantage of more dislocations…whether it’s the dollar, whether it’s even Treasury duration, which may look out of value, which may be contrary to your longer strategic view…and hedging that,” Fetter said. “We’ve used the dollar pretty significantly…You just need to get a bit more creative in terms of understanding where things can go.”

When asked whether the situation in North Korea requires an investment pivot in strategy or offers opportunities, he said “in the short-term, it’s noise”.

“If it becomes bigger and more material and adds up and starts to create negative feedbacks into a lot of the markets you look at from a valuation perspective, it’s something that you need to consider and adapt your view.”

He said both Brexit and the US election of Trump created short-term opportunities, without affecting his long-term view.

Conexus Financial, publisher of Professional Planner and Investment Magazine, is the official media partner of the IMCA Annual Conference.