Developments on the stock markets are always embedded in political and social conditions of whatever kind. Against the backdrop of the current significant increase in uncertainty and ambiguity in global political events – key words “Russian war of aggression in Ukraine” or “Corona” – the professional association of investment professionals asked its members about aspects of geoeconomics – the combination of security and economic policy.
Geoeconomics has a stronger influence on research than on the development of the stock market
There was a differentiated opinion on the question whether stock markets have “longer legs” – i.e. more lasting influence – than in the past. 42% agree with this statement, 32% say that this is not the case. That there is no change is the verdict of 22 %.
Nevertheless, political analyses have a major impact on research. More than half, 60%, believe that political analysis plays a greater role in research than it did ten years ago. Just under a third (30%) do not share this view and 10% abstain.
However, the purchase of political research is rather the exception. 89% of the analysts do it themselves; only 11% buy it in from outside.
Question: Do you or your employer buy political research?
Answers: 89% = No, I/we create our own; 11% = Yes, I/we buy
Commodity markets most politicised
Individual investment markets are dependent to varying degrees on political developments. The result of the assessment shows: 33% for commodities, 19% for equities, 17% for real estate, 15% for bonds, 11% for foreign exchange and 5% for “other investments” (e.g. precious metals, crypto-assets).
Industrialised countries more dependent on geopolitical risks
Which regions do you think are more politicised? 64 % think it is the industrialised countries. 36 % suspect the emerging markets.
No strong opinion on geopolitical risk premiums
Collecting above-average risk premiums classically pays off in investments over the long term. We asked DVFA investment professionals whether they consider geopolitical risk premiums attractive on average. 14% answered in the affirmative, 24% in the negative. A clear majority of 62% cannot answer the question across the board.
ESG research partially addresses political uncertainty
ESG research could be a tool to address and map geo-economic risks. Half of the survey participants believe that this is partially successful. 38% are of the opinion that it does not. 11% cannot give an opinion and 1% see geo-economic risks fully addressed in ESG research.
Ingo R. Mainert, Deputy Chairman of the DVFA, summarises: “The majority of our DVFA investment professionals see the increasing need for political analyses in the analysis process. To date, this research component has predominantly been produced internally. This is the main finding of our recent sentiment test.”
Source: DVFA Monthly Question as of 11 July 2023
Grafics: DVFA
Title Image: Unsplash