The geopolitical impact on markets

Geopolitical risk is on the rise and investors will have to take it increasingly into account in the coming years. Our analysis attempts to shed light on how it may affect portfolios and what strategies investors can use to manage it.

Two factors are driving geopolitical risk

• China’s growth

Ten years from now, China’s GDP will have a weight equal to that of the US in the global economy. This fact has important implications for relations between the two countries and, above all, for the U.S. attitude to international treaties and institutions.

• The rise of populism

The underlying causes of this phenomenon are wage stagnation and rising inequality in developed countries. Populist parties have been able to capitalize on this discontent through economic nationalism, which blames the poor economic situation on globalization and, more specifically, on imports, outsourcing of services and immigration. This argument justifies protectionism, the withdrawal of trade agreements and restrictions on the entry of immigrants. It is clear that such policies will increase political risk, as countries will have to redesign their alliances, become less interconnected and less dependent on each other.