Terrorism. Brexit. Cyberattacks. North Korea's missile tests. A special prosecutor investigating the U.S. administration's possible collusion with Russia.
It appears the world is becoming increasingly unpredictable and volatile.
“Geopolitical risk has always been right underneath the surface. But things seem to be bubbling up to the surface more so now than they have in the last 10 years,” said Rob Balkema, senior portfolio manager, multiasset solutions, for Russell Investments, New York.
So, how do investors navigate the minefield of geopolitical risks inherent to global investing? Most industry insiders say although asset owners are becoming more concerned with geopolitical risks, it's essential to tell the difference between one-off events and events that could mark long-term change.
And for the most part, they say, the events are one-off events.
Most geopolitical events have a very short-term and transitory impact on markets, Jim McDonald, chief investment strategist for Chicago-based Northern Trust Asset Management, said in a phone interview. After a major geopolitical event, the market on average initially loses about 4%, but only a few days later goes back to doing whatever it was before, he said.
“So, there's a high bar for us to make a change (to portfolios) because of a geopolitical event,” said Mr. McDonald.
Alexander Kazan, managing director, global strategy and analytics at global political risk research and consulting firm Eurasia Group, New York, agreed. “It could be a North Korean missile test or a terrorist attack, where there's a very quick reaction in the market,” said Mr. Kazan. “But typically, these one-off events tend not to have a sustained impact on markets.
Mr. Kazan noted “there are exceptions — 9/11, of course.”