Asset owners and money managers say in an interdependent world, they are used to the drumbeat of geopolitical crises.
Lately, it feels like the beat is getting faster.
The protests in Ukraine that toppled the government of former President Viktor Yanukovych and ultimately led to Russia's annexation of Crimea has put a spotlight on how quickly things can change. The crisis also raises questions for investors about a possible sovereign debt default, the financial health of oil and gas sector companies in the region, and even the strength of the European economic recovery.
Christopher J. Ailman, chief investment officer of the $180.8 billion California State Teachers' Retirement System, said staff always keeps an eye on geopolitical risks when it comes to making global investments.
“The markets are more interlinked now than they were in the 1980s. It's a tougher job than it was 30 years ago, because it's a more dynamic global marketplace,” Mr. Ailman said in a telephone interview. “Difficult to price' is part of investing in the global market.”
Mr. Ailman routinely presents possible geopolitical risks to the CalSTRS' board that he referred to as the “black swan list.”
CalSTRS, West Sacramento, has about $6.3 billion in emerging markets, according to pension fund spokesman Michael Sicilia.
Allianz SE Chief Economic Adviser Mohamed El-Erian, in a commentary last week in the Financial Times, cautioned investors to pay attention to the possibility that the cumulative geopolitical risk from tensions and crises around the globe, including those in Ukraine, Syria, North Korea and elsewhere, could prompt a speedy asset repricing. Mr. El-Erian was unavailable for further comment.
Allen Sinai, CEO of Decision Economics Inc., said in a phone interview that he sees a “one in 10” chance of the situation in Ukraine leading to a global recession and laid out the factors that could do the most harm. Decision Economics is an economic and financial information firm in New York.
“The damage to the full global economy at this point is limited, unless the fight between Russia and the West escalates into a situation that drives oil and natural gas prices significantly higher,” he said, noting that Russia falling into a recession, thereby shutting down its supply of crude oil and natural gas to Ukraine and the U.S., could trigger such a scenario.