At the Bloomberg Wealth summit in Hong Kong, political risks were a major focus following the surprising election result in India. Wealthy investors, including UBS Group AG and Hang Lung Group Ltd., emphasized the importance of geopolitics in their investment strategies. With ongoing conflicts in Europe and the Middle East, increasing tensions between major powers, and upcoming elections in countries like Mexico, South Africa, and the US, geopolitical risks are at the forefront of investors’ minds. Sonja Laud, the chief investment officer at Legal & General Investment Management Ltd., stressed the significance of these risks and urged investors not to overlook them.
On Tuesday, Indian stocks experienced their most significant decline in four years as Prime Minister Narendra Modi’s party lost its majority in parliament. Similarly, Mexico saw a decline in the peso and equities after concerns arose that the ruling party’s overwhelming victory may lead to increased state control of the economy.
According to a recent UBS survey, family offices worldwide have identified geopolitics as the greatest risk in the coming year. Pierre-Yves Lombard, head of private banking in Japan at Lombard Odier Group, emphasized that geopolitical concerns are not limited to Asia but are prevalent globally. As a result, clients are seeking out the safest and most robust financial centers and institutions.
When it comes to managing political risk, investors are questioning whether it can be effectively hedged. According to LGIM’s Laud, the answer is no. Instead, the best approach is to be prepared and avoid trying to predict outcomes.
According to Amy Lo, UBS’s head of wealth management in Asia, geopolitical tensions are driving wealthy families to increase their holdings of gold. She stated that “given the current geopolitical situation, some family offices have been diversifying into gold,” including physical holdings.
In addition, the issue of inequality has become more prominent due to the rising cost of living, leading to protest votes. This trend has resulted in a shift to the right in Europe, while in India, wealth disparity played a significant role in preventing Modi from securing a majority, as noted by Laud.
During a panel discussion at the event, Vikram Malhotra, co-founder and CEO of wealth management firm 360 ONE Global, emphasized the need to address the wide wealth gap. He stated that “we cannot afford such a significant disparity” and emphasized the importance of ensuring that the benefits of economic growth are distributed more evenly.
According to Rachel Lau, managing partner at Malaysian private investment firm RHL Ventures, some businesses have profited from geopolitical tensions. Lau mentioned that Southeast Asia has attracted a significant amount of capital redirected from the US or China. She believes that the region is considered “neutral” in the ongoing trade war between the two superpowers.
Ronnie Chan, a veteran in property development, advised investors to differentiate between politics, which is usually short-lived, and long-term economic fundamentals. He emphasized the need to have a clear understanding of what is political and what is purely economic, as the world will eventually need to rebalance over time.
Assistance in gathering information for this article was provided by Erik Schatzker, K. Oanh Ha, Lulu Yilun Chen, Shawna Kwan, and Kiuyan Wong.