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Geopolitical Risk - Time to play Defense?

With potential binary events lurking, everyone should have a plan!

Geopolitical risks, currently most prominent in the shape of potential impeachment, the destabilising effect on markets of tweets on the progress (or otherwise!) of US - China trade tariffs, protest movements, or the ebb and flow of Middle East tensions are key factors that investors need to consider. All these 'event risks' have the potential to disrupt markets and impact upon portfolios to a greater or lesser degree. To be forewarned is to be forearmed!

Once appraised of the risks, investors can potentially mitigate the worst of any of any shocks using a variety of approaches. Savvy Investor offers a number of recent white papers that discuss the broader subject of geopolitical risks, their likely impact on markets and how one might defend against the worst of any impacts.

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DEFENSIVE APPROACHES


Minimum Variance: A Leg Up on Geopolitical Risk? (Axioma, 2019)

Axioma examines the performance of minimum variance strategies during prior periods of high geopolitical risk.

Can Volatility Actually Help Protect Your Capital? (Intech, Oct 2019)

For compliance reasons, this paper is only accessible in certain geographies

Intech suggests that market volatility measures, at both stock and market level can be used to enhance portfolio returns

The four pillars to face a world of uncertainty (Franklin Templeton, Oct 2019)

For compliance reasons, this paper is only accessible in certain geographies

Franklin Templeton identifies a number of challenges and potential threats, (both political and economic) that may affect portfolios. They suggest a number of strategies that portfolio managers might adopt in order to mitigate some of these risks.


GEOPOLITICS ROUNDTABLE: OBSERVATIONS AND OPINIONS


Country Risk: Determinants, Measures and Implications (Aswath Damodaran, 2019)

In this paper, Aswath Damodaran examines country risk through many lenses, but with the end game of being able to incorporate it into decision making both for investors and businesses.

Video: The New World (Dis)Order - Peter Zeihan, Sep 2019

In this video with the CFA, Peter Zeihan discusses major geopolitics trends occurring currently, as well as the importance of geopolitics for financial professionals.

House Report: When investment is political (Sarasin & Partners, Oct 2019)

Sarasin's outlook paper contains a piece which examines the intersection of politics and investment.


MARKET STRESS AND DISLOCATION


Stress testing Brexit: Deal or no deal? (MSCI blog, Oct 2019)

“Deal” and “no-deal” scenarios and their impact for equities and bonds are examined by MSCI

Stress Testing a Presidential Impeachment – Part Deux (Axioma blog, Sep 2019)

Axioma investigates the implications of recent impeachment proceedings and how investors might best react.

Brexit: can capital market fragmentation be avoided? (ICMA, Oct 2019)

This paper focuses instead on the implications of Brexit for the fragmentation of international capital markets.

Brexit: Extension is likely, but the final outcome remains uncertain (Amundi AM)

For compliance reasons, this paper is NOT accessible in the United States

Amundi Asset Management provides updates on the ongoing Brexit negotiations and possible scenarios that could arise.


THE US - CHINA DEBATE AND IMPEACHMENT PROCCEDINGS


Capital Flows, China and Pending Impeachment Conflict (Ray Dalio, Oct 2019)

Ray Dalio examines some of the key risks to the markets, including geopolitics.

Trade tightrope: Investors eye U.S.-China “mini” deal (Capital Group blog)

For compliance reasons, this paper is only accessible in the UK & Europe

Capital Group reviews the pros and cons of the recent US-China trade deal.

The Next Digital Superpower: The U.S. or China? (Vontobel AM, Sep 2019)

Vontobel examines the geopolitics of the US - China relationship, offering insights into some of the key drivers and explores several potential scenarios as to how this might develop.

Timing of Trump impeachment could further weaken global economy (Fidelity Intl)

For compliance reasons, this paper is only accessible in the UK & Europe

The timing of the recent impeachment proceedings are the last thing the markets need now, suggests Fidelity.