There is not always a clear path to investing in agriculture. We lay out the options and timelines involved
Article
Economic and geopolitical risk are inseparable for investors in an evolving global investment landscape
The economic outlook and the potential risks and opportunities it represents has long been a main driver of investment decisions. Geopolitical risk was more a back burner consideration, occasionally coming to the fore when country tensions rapidly expanded.
However, we are shifting from the previous ‘era’ of globalisation to a more nuanced world order dominated by regional geo-politics and position jostling by the major powers. This type of global regime change tends to occur every 30-40 years.
The key point for investors is that it is no longer sensible nor possible to separate the geo-political from the economic.
Geopolitical risk can impact all investments across regions, sectors and industries. It refers to the potential for political, social, economic, or military conflicts to disrupt financial markets or affect the performance of investments.
These risks can arise from issues such as wars, political instability, trade disputes, terrorism, and regulatory changes, among others. Geopolitical risk can have a significant influence on investment decisions and asset allocation, as it introduces uncertainty and can lead to market volatility.
Additionally, geopolitical events can disrupt supply chains, affect global trade agreements, and lead to changes in government policies that can directly impact businesses and investments. For example, trade tensions between countries may result in tariffs being imposed on imports and exports, affecting the profitability of businesses operating in those markets.
In addition to impacting trade and political policies directly, geopolitical risk can also influence traders that focus on macroeconomic indicators and their approach to managing foreign exchange rates, interest rates, and commodity prices, further complicating investment decisions.
There are several strategies that investors can consider when looking to reduce risk:
Maintaining a long-term investment perspective and avoiding hasty reactions to geopolitical events can help investors ride out short-term volatility and focus on their overall investment goals.
Whilst markets can have a negative reaction to global conflicts, historically they tend to recover within weeks from the low point.
By sticking to a well-defined investment strategy, investors can avoid the emotional impulses of reacting to market fluctuations and mitigating short-term down turns by remaining invested for the long term.
In conclusion, geopolitical risk is a critical consideration for investors, as it can have a significant impact on performance and portfolio stability.
By understanding the nature of geopolitical risk, implementing risk management strategies, and seeking expert advice, investors can effectively mitigate the impact of geopolitical events on their investments and make more informed decisions in today’s complex global marketplace.
The information contained in this article is gathered from multiple sources believed to be reliable as at July 2024 and is intended to be of a general nature only. It has been prepared without taking into account any person’s objectives, financial situation or needs. NAB does not guarantee the accuracy or reliability of any information in this article which is stated or provided by a third party. Before acting on this information, NAB recommends that you consider whether it is appropriate for your circumstances. NAB recommends that you seek independent legal, property, financial and taxation advice before acting on any information in this article. ©2024 NAB Private Wealth is a division of National Australia Bank Limited ABN 12 004 044 937 AFSL and Australian Credit Licence 230686.
The information contained in this article is intended to be of a general nature only. It has been prepared without taking into account any person’s objectives, financial situation or needs. NAB does not guarantee the accuracy or reliability of any information in this article which is stated or provided by a third party. Before acting on this information, NAB recommends that you consider whether it is appropriate for your circumstances. NAB recommends that you seek independent legal, property, financial and taxation advice before acting on any information in this article. You may be exposed to investment risk, including loss of income and principal invested.
You should consider the relevant Product Disclosure Statement (PDS), Information Memorandum (IM) or other disclosure document and Financial Services Guide (available on request) before deciding whether to acquire, or to continue to hold, any of our products.
All information in this article is intended to be accessed by the following persons ‘Wholesale Clients’ as defined by the Corporations Act. This article should not be construed as a recommendation to acquire or dispose of any investments.
© National Australia Bank Limited. ABN 12 004 044 937 AFSL and Australian Credit Licence 230686.