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Reference News reported on July 23 Geopolitical confrontations, including trade wars, have now replaced inflation as the biggest concern for sovereign wealth funds and central banks, which manage about $22 trillion in assets, according to a survey by Invesco Asset Management released on July 22.

Escalating conflicts - from the Russia-Ukraine war to trade restrictions - have been looming over global investors for years, but tensions are now moving center stage as inflation recedes and nearly half the world's population votes for new leaders.

Rod Ringello, head of official institutions at Invesco, said "this year is certainly an election year" and said "geopolitics has replaced (inflation) in both the short and long term."

Some 83% of respondents ranked geopolitical tensions as their biggest concern in the near term, while 86% ranked geopolitical fragmentation and protectionism as their biggest concern over the next decade.

From a long-term perspective, respondents identified climate change as the second-biggest risk.

“Climate focus is now mainstream and the investment process of sovereign funds and central banks ... is starting to allocate capital with an eye on this,” Lingaro said.

The Invesco Global Sovereign Asset Management Study, now in its 12th year, surveyed 83 sovereign wealth funds and 57 central banks in the first quarter of 2024.

The tensions - especially the West's seizure of more than $300 billion in Russian assets in response to the conflict with Ukraine - are also spooking central banks.

A total of 56% of central banks said the “potential weaponization” of reserves boosted gold’s appeal.

“We’ve seen more central banks buying gold, buying physical gold ... and increasing demand to try to store all or some of that gold locally,” Lingero said.

Central banks have traditionally stored their gold in hubs such as London and New York. But as Venezuela discovered in recent years, in these locations, gold can actually be confiscated.

More than half of survey respondents said emerging markets were likely to benefit from increasing multipolarity, while 67% of sovereign wealth funds expected emerging markets to catch up with or surpass developed markets.

India is the most attractive market, partly because its bonds are becoming part of global investment indices.

But Lingaro said some other emerging economies, such as Mexico, Brazil, Indonesia and South Korea, could "take advantage of the disruption in trade and economic activity."

According to a report on the Bloomberg News website on July 21, an annual survey by Invesco Asset Management showed that sovereign wealth funds and central banks managing $22 trillion in assets expect emerging market assets to benefit from escalating geopolitical tensions.

The survey of 83 sovereign wealth funds and 57 central banks showed that two-thirds of respondents expected emerging market returns to catch up with or exceed developed markets in the next three years, and non-Western sovereign wealth funds were more enthusiastic about the relative outperformance of assets in developing countries.

Investors do not view developing markets as a single group, and emerging Asian countries outside of China are becoming investors' favorites. India, in particular, has become a top choice for investors due to its large domestic market and growing middle class. 88% of respondents expressed interest in increasing their exposure to the Indian bond market, up from 66% in 2022.

Indonesia is also gaining attention, with 47% of respondents wanting to increase their exposure to the country's bond market, up from 27% in 2022, according to Invesco.

More than half of the respondents invest in emerging market bonds, and more than two-thirds of them hold both local currency bonds and hard currency bonds. Bloomberg indexes show that government and corporate bonds denominated in U.S. dollars issued by emerging market issuers have risen 3.4% so far this year, compared with a 1.3% drop in global bond markets and a 2.8% drop in U.S. Treasuries. (Compiled by Yang Xinpeng and Ma Dan)