Geopolitical risk – investing in an unpredictable world

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Geopolitical risk

Geopolitical risk has become an increasingly significant factor influencing global investment decisions. This article explores the complexities around the geopolitical landscape, providing insights into how investing through reputable investment management companies can help you navigate these challenges to maximise returns while managing uncertainties.

The potential for investment risk can stem from various sources, such as a nation’s participation in global affairs or significant events impacting the world economy. While the consequences of these occurrences may appear insignificant at times, their ability to disrupt financial markets underscores the importance of proactive preparation and vigilant monitoring to protect our investments effectively.

So how can one prepare for something that nobody could have possibly expected?

Investing through established investment management companies and having a range of actively managed funds in your portfolio will prove invaluable whichever market phase we are in, but especially during times of uncertainty.

What is geopolitical risk?

Geopolitical risk refers to the potential for events in one country or region to adversely impact global markets, investments, or businesses.

A pandemic, such as Covid-19, can simultaneously alter the political, social, and economic environment of several countries. Trade tensions between powerful nations can bring market volatility in anticipation of further escalation. Political instability can bring uncertainty to future economic legislation. One nation’s aggression towards another can divide global loyalties, resources and support.

While the interconnectedness of the world’s economies and societies has exacerbated these risks and their overall impact, it is important to understand that the presence of ‘risk’ is not necessarily negative when it comes to investment. While risk can potentially lead to political upheaval and conflict, it can also inspire innovation and creativity as governments and individuals attempt to mitigate against current threats and future occurrences.

“Geopolitical fragmentation is accelerating in 2024” – Blackrock Investment Institute

The benefits of working with an investment manager

Monitoring and preparing for geopolitical risk is a significant part of the investment fund manager’s role in securing the longevity and growth of your investments. Having an expert at the helm can provide informed updates and proactive decision-making, adding a layer of protection unavailable to the typical private investor.

This will also help you stick to your long-term plan instead of making emotional investment decisions, and ensure you have sufficient diversification to help reduce risk.

Assessing geopolitical risk

Identifying and tracking the biggest risks on the horizon allows your investment fund managers to implement plans should any of these risks become a reality. They will consider qualitative and quantitative data when devising a strategy to protect their funds and capitalise on opportunities.

Fund managers analyse both macro-level geopolitical trends and country-specific risks as these significantly influence overall investment strategies. Macro-level considerations encompass global economic stability, currency fluctuations, commodity prices, and trade policies. Country-specific risks factor in political stability, regulatory environments, gross domestic product (GDP) growth and inflation rates, as well as an increasing focus on environmental, social, and governance (ESG) criteria.

Strategies for mitigating geopolitical risk

Technology and data analytics play a significant role in the way your investment fund managers can assess and respond to geopolitical risk. Live data feeds enable the constant monitoring of global markets, and our ability to report news from around the world instantly allows fund managers to correlate that information against current events in real-time.

A crucial component of an effective investment strategy involves thorough analysis and comprehension of historical data. While forecasting market outcomes lacks certainty, studying past events that influenced market trends enables fund managers to formulate actionable plans with a heightened probability of success. This process may involve enhancing diversification or reallocating assets toward investments that have exhibited greater resilience against the specific risks being mitigated.

Geopolitical risk - Markets over time

Securing the future of your investments

As geopolitical uncertainties continue to shape the global investment landscape, proactive risk management and strategic decision-making are essential for investors seeking to capitalise on opportunities while safeguarding against potential disruptions.

Blevins Franks has been advising clients for almost 50 years, and we use world-leading investment managers to ensure that plans are in place that can identify, monitor and respond to geopolitical risk – giving our clients peace of mind for the future of their investments.

Contact Blevins Franks today.

All advice received from Blevins Franks is personalised and provided in writing. This article, however, should not be construed as providing any personalised investment advice.  The value of investments can fall as well as rise, as can the income arising from them. Past performance should not be seen as an indication of future performance.

Tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; individuals should seek personalised advice.

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