Geopolitical rivalries, especially U.S.-China trade battles, now top inflation concerns for sovereign wealth funds and central banks.
Global conflicts, like Russia-Ukraine war and trade restrictions, now dominate, as inflation recedes and half the world votes.
“This is, of course, the year of elections,” said Rod Ringrow, Invesco’s head of official institutions, adding that “geopolitics has trumped (inflation) on both the short and long term outlook.”
83% cited geopolitical tensions as a top concern, surpassing inflation at 73%. For the decade, 86% fear geopolitical fragmentation and protectionism.
Climate change was ranked as the second-most significant risk by respondents in the long run.
“Climate is mainstream now and the investment processes for the sovereign funds and the central banks…are beginning to allocate capital to look at that and see how that impacts,” Ringrow said.
The 12th Invesco Global Sovereign Asset Management Study polled 83 sovereign wealth funds and 53 central banks in early 2024.
Central Banks Shift to Gold Amid Geopolitical Strains
The West’s seizure of $300 billion in Russian assets due to the Ukraine invasion alarmed central banks.
A total of 56% thought the “potential weaponisation” of reserves increased the appeal of gold.
“We have seen more central banks buying gold, buying physical gold…and an increasing demand to try and hold the gold, or some of it, locally,” Ringrow said.
Central banks stored gold in hubs like London and New York; however, Venezuela recently discovered it can be seized there.
Transitioning, over half believe emerging markets will benefit from rising multipolarity, and 67% of sovereign wealth funds expect them to match or exceed developed markets.
India became a top market as its bonds now feature in easily accessible global investment indices. Consequently, interest increased.
Ringrow stated that Mexico, Brazil, Indonesia, and South Korea can benefit from trade and economic disruptions.
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