Martin Currie: Increased geopolitical tension and further lockdowns in China are increasing the risk of an economic slowdown. However, in a world transitioning towards sustainability, exciting opportunities remain for long-term investors.
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Investors focused on geopolitics with Russia and China seen as key uncertainties
The Russian invasion of Ukraine is leading to a tragic crisis for the Ukrainian people and is resulting in:
- increased geopolitical risks across the world,
- higher risk aversion amongst investors, and
- a potentially negative impact on macroeconomic momentum.
The outcome of Ukraine-Russia conflict is highly uncertain, with the potential risk of the conflict both escalating and widening, which could further push the market into risk aversion. There is the likelihood of a growing focus on China’s territorial claims in the South China Sea, with the second half of the year bringing the focus on President Xi Jinping’s likely third term as leader, and potentially beyond. This could unleash a more pronounced territorial ambition around Taiwan, in turn leading to a flare up in tensions, and adding further geopolitical risk that the market is not currently factoring in.
Cyber security attacks could also lead to an increased focus on the digital Cold War which is at risk of escalating. All in all, as mentioned in our 2022 outlook, geopolitical risks are now coming out in the open, which is in our view something that investors should increasingly focus on for the remainder of the year.
WHAT ARE THE RISKS?
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