Globalization of politics: What it means for investors

Can Donald Trump influence the performance of your portfolio? Can Vladimir Putin or Xi Jinping dictate your asset allocation strategy? Can Benjamin Netanyahu alter your net worth this year?

Apparently, they can.

“Geopolitical events can have a significant impact on financial markets,” said Ma. Cristina Gabaldon, Head, Investment Management Division, Metrobank.

“Geopolitical tensions, conflicts, trade disputes, and policy changes can create uncertainty and volatility, affecting investor confidence and market sentiment.”

In a recent webinar by BCA Research in collaboration with the Fund Managers Association of the Philippines (FMAP), Matt Gertken, Chief Geopolitical Strategist of BCA Research, said the “US election is spreading uncertainty into the world and markets.”

He said markets typically perform poorly during elections and that if the incumbent president is not re-elected, the markets tend to have a pullback and cause some volatility because of policy uncertainty.

US President Joe Biden’s approval rating in several surveys has been dismal so far. If the Republicans win, they can shift policy towards immigration and tariffs, which are all inflationary, he said.

Gabaldon said assigning probabilities for events in the US election, such as what BCA has done, is important.

“Studying probabilities of how different scenarios will play out, such as the win rates of the incumbent US President if there is a recession or none, are crucial in investing. They provide a framework for understanding and managing risk,” said Gabaldon.

As for Russia and China, foreign direct investment from Europe has been declining. Russia’s economy is deteriorating, and China’s is struggling.

Gertken of BCA pointed out that Putin has the propensity for waging war whenever his popularity is declining or when the economy is doing poorly. This is evident in Russia’s invasion of Georgia in 2008, Crimea in 2014, and, most recently, the “special military operation” he started in Ukraine in 2022.

Benjamin Netanyahu also influences the trajectories of markets with how he deals with Hamas and Iran. The flow of global oil supply is controlled by a few countries in the Middle East, and war disrupts the flow of oil shipments in crucial straits in the area. Nobody wants rapid price increases of gas and other oil products.

“Geopolitics should be part of investment process considerations and cannot be ignored,” said Gabaldon. “Understanding the likelihood of different outcomes and examining historical data helps portfolio managers anticipate potential risks and rewards, leading to more successful investment strategies.”

She sums up her advice to investors with this: “Because the geopolitical situation seems to be inflationary, choose sectors or companies that may be resilient in this environment such as banks, healthcare, staples, and utilities. Have hard commodities like gold and silver in your portfolio and US dollar currency as safe havens. Diversify also in terms of geography. Have investments in emerging markets as well as developed markets.”

She adds: “Value-over-growth theme might also do better. Go for value investments in companies whose stock prices are lower than their actual value, rather than growth investments in companies expected to grow quickly.”

Of course, it is always best to consult your relationship manager or investment advisor before making any investment decision.

(Bookmark and visit Metrobank Wealth Insights at www.wealthinsights.ph daily for investment insights and ideas. If you are a Metrobank client, please get in touch with your relationship manager or investment specialist for assistance in accessing exclusive content. Not a client yet? Please sign up here or visit any Metrobank branch so you can begin your wealth journey with us.)

ANTHONY O. ALCANTARA is the editor-in-chief of Wealth Insights. He has over 20 years of experience in corporate communications and has won various communication awards for his work in helping companies and individuals communicate with purpose, clarity, and creativity. He also has a master’s degree in technology management from the University of the Philippines. When not at work, he goes out on epic adventures with his family, practices Aikido, and sings in a church choir.