Yahoo Finance Dramatic Rise in Geopolitical Risk in Focus at HK Wealth Forum
(Bloomberg) -- In the wake of India’s surprise election result, political risks were a big theme at the Bloomberg Wealth summit held in Hong Kong on Wednesday.
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Participants from UBS Group AG to Hang Lung Group Ltd. highlighted how geopolitics are on the minds of the richest investors, as they try to navigate wars in Europe and the Middle East, escalating tensions between superpowers, and a year of key elections around the world from Mexico to South Africa and the US.
“Geopolitical risk and the possibility of a tail risk event has gone up dramatically,” said Sonja Laud, chief investment officer at Legal & General Investment Management Ltd. “As investors, we should not ignore this.”
Indian stocks tumbled the most in four years on Tuesday after Prime Minister Narendra Modi’s party lost its majority in parliament. In Mexico earlier this week, the peso sank and equities plunged after the ruling party’s landslide victory sparked concerns that it may increase state control of the economy.
Family offices around the world ranked geopolitics as the biggest risk over the next 12 months in a UBS survey published last month.
“Geopolitics are definitely a big concern on all fronts, not just in Asia, but across the world,” said Pierre-Yves Lombard, head of private banking in Japan at Lombard Odier Group. “That concern is leading clients to look for the safest and strongest financial centers” and institutions, he said.
The biggest question from investors trying to manage political risk is whether they can hedge it, said LGIM’s Laud. “The answer is ‘no,’” she said. “The only thing you can do is prepare. Do not try to predict.”
UBS’s Asia wealth chief Amy Lo said geopolitical tensions are prompting the richest families to buy more gold. “Given the geopolitical situation, some of the family offices have been diversifying into gold,” including physical, she said.
Laud said issues of inequality have come to the fore with the cost of living crisis, spurring protest votes. In Europe, that’s fueled a shift to the right, while in India, wealth disparity was a big reason why Modi was unable to extend his majority, she said.
“We can’t have such a wide gap,” Vikram Malhotra, co-founder and CEO of wealth management firm 360 ONE Global, said on a panel at the event. “We need to see the benefit of the growth of the economy percolating down.”
Some businesses have benefited from geopolitical tensions. Southeast Asia has received a significant amount of capital diverted from the US or China, said Rachel Lau, managing partner at Malaysian private investment firm RHL Ventures. The region is seen as “neutral” in the US-China trade war, she said.
Property development veteran Ronnie Chan urged investors to discern the difference between politics — which tends to be short-lived — and longer-term economic fundamentals.
“Over time, the whole world will have to rebalance,” said Chan, former chairman of Hang Lung Group. “So let’s make sure that our heads are clear: what is political and what is purely economic.”
--With assistance from Erik Schatzker, K. Oanh Ha, Lulu Yilun Chen, Shawna Kwan and Kiuyan Wong.
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