Investors Prioritizing Geopolitical Risks, but See Opportunities — Evening Brief – 09.20.24
A new survey by PGIM, the $1.33 trillion global asset management arm of Prudential Financial, indicates that institutional investors are prioritizing geopolitical risks in 2024. Yet, many are planning to raise their tolerance for risk in 2025.
The 2024 Global Risk Report, which polled 400 institutional investors managing $9 trillion in assets across eight countries, discovered that 56% of respondents are most concerned about geopolitical risk. This comes amid ongoing economic disputes, military conflicts, and important elections in more than 70 nations this year.
Investors ranked the Taiwan Strait and South China Sea as the most likely geopolitical flashpoints to disrupt global markets in the next two years, with 48% citing the region. The Middle East was identified as the next most major risk location, with 27% of investors citing potential military conflicts.
The survey indicates that a significant number of institutional investors are interpreting market volatility as an opportunity, despite these concerns. By the end of 2025, one-third of respondents intend to implement a more aggressive portfolio strategy, a significant increase from the current one-quarter of respondents who are taking on increased risk.
Globally, 29% of investors have increased their cash holdings in response to geopolitical uncertainty. This trend is most pronounced in the U.S., where 41% have shifted to cash to manage risk. Meanwhile, elections are having an impact on investment decisions, as 56% of global investors are incorporating electoral outcomes into their portfolio strategies.
Nevertheless, most institutional investors are adequately prepared to address potential consequences of elections and other geopolitical developments. At least 66% of respondents expressed confidence in the ability of their portfolios to withstand the effects of global debt levels, trade disputes, regulatory changes, and supply-chain disruptions.
Investors are utilizing quantitative models, increased liquidity management, and diversification to predict evolving trends. To mitigate risk while maintaining upside potential, certain investors are utilizing buffered exchange-traded funds (ETFs). Additional suggestions include the implementation of active investment strategies, stress assessments through scenario analysis, and the increase in allocations to real assets.