Geopolitical Tensions Surpass Inflation as Top Concern for Wealth Funds and Banks

Geopolitical tensions, including Russia’s war in Ukraine and global trade restrictions, have overtaken inflation as the main concern for sovereign wealth funds and central banks. According to Invesco’s head of official institutions, Rod Ringrow, “Geopolitics has trumped both the short term and the long term outlook.”

• 83% of respondents listed geopolitical tensions as their top near-term concern.
• 73% of respondents listed inflation as their top near-term concern.
• 86% of respondents cited geopolitical fragmentation and protectionism as top concerns for the next decade.

Long-Term Risks and Climate Change

In the long term, climate change is seen as the second-biggest risk after geopolitical issues. Investment processes for sovereign funds and central banks are beginning to allocate capital to address the impact of climate change.

Gold as a Safe Haven

The survey revealed that the potential “weaponisation” of reserves has made gold more appealing to central banks.

• 56% of central banks highlighted this as a concern, leading to increased gold purchases.
• Central banks are now holding more gold locally, shifting away from traditional storage centers like London and New York.

Emerging Markets Show Promise

Despite geopolitical tensions, emerging markets are viewed optimistically.

• More than half of respondents believe emerging markets will benefit from increasing global multipolarity.
• 67% of sovereign wealth funds expect emerging markets to match or outperform developed markets.
• India is the most attractive market, with its bonds becoming part of global investment indices.

Other promising emerging economies include Mexico, Brazil, Indonesia, and South Korea, which are expected to benefit from shifts in trade and economic activity.

Conclusion

The Invesco Global Sovereign Asset Management Study, now in its 12th year, surveyed 83 sovereign wealth funds and 53 central banks in the first quarter of 2024. It highlights the growing importance of geopolitical factors in global investment strategies and the increasing focus on gold and emerging markets as safe havens and opportunities.