Geopolitical competition has now overtaken inflation as the biggest concern for global sovereign wealth funds and central banks, which manage about $22 trillion in assets, according to a survey released by Invesco on Monday.
As the inflationary tide recedes and nearly half the world's population votes for new leaders, geopolitical tensions are now in focus.
“This is certainly an election year,” said Rod Ringrow, head of official institutions at Invesco. “Geopolitical concerns trump inflation in both the short and long term outlooks.”
About 83% of respondents ranked geopolitical tensions as their top near-term concern, surpassing the 73% who named inflation as their top near-term concern. 86% of respondents ranked geopolitical fragmentation and protectionism as their top concern over the next decade.
In the long term, respondents also ranked climate change as the second-biggest risk.
“Climate issues are now mainstream and sovereign funds and central banks’ investment programs ... are starting to allocate funds to look at climate issues and understand the impacts,” Ringrow said.
Invesco's research on global sovereign asset management is now in its 12th year. This survey was conducted in the first quarter of 2024 and covered 83 sovereign wealth funds and 53 central banks, with a total asset value of US$22 trillion under management.
Opportunities in the gold market
Global geopolitical tensions - particularly after the West seized more than $300 billion in Russian assets in response to the Russia-Ukraine conflict - have central banks spooked.
A total of 56% of respondents said the "potential weaponization" of reserve assets enhances gold's appeal.
“We are seeing more and more central banks buying gold, buying physical gold ... and they are increasingly inclined to hold all or part of their gold locally,” Ringrow said.
Central banks have traditionally stored gold in centres such as London and New York, but as Venezuela has discovered in recent years, these are places where gold can be effectively seized.
Emerging markets may rise
More than half of respondents said emerging markets were likely to benefit from increasing multipolarity, while 67% of sovereign wealth funds expected emerging markets to catch up with or outperform developed markets.
India is the most attractive emerging market, in part because its bonds are becoming part of global investment indexes that are easily accessible to investors.
But Ringrow is bullish on other emerging economies including Mexico, Brazil, Indonesia and South Korea, noting they could benefit from “taking advantage of misalignments in trade and economic activity.”
The article is forwarded from: Jinshi Data