Johanna Kyrklund (pictured), is group CIO and co-head of investment at Schroders
Johanna Kyrklund, group CIO and co-head of investment at Schroders, has urged investors to pay closer attention to macroeconomic factors such as GDP, inflation and interest rates, rather than geopolitical tensions.
During the firm's London Conference on 25 January, attended by Investment Week, Kyrklund acknowledged that many investors have expressed worry over global geopolitical tensions and the impact these may have on their portfolios.
From Russia's invasion of Ukraine going into its third year, to the conflict in Gaza, there is a concern that, beyond the human casualties and impacts on the countries involved, these could also affect markets and the global economy.
However, the CIO said that asset allocators should place their attention on what geopolitical events could impact investments and returns.
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As such, with 2024 being the year with the highest number of elections around the world, she argued allocators should focus on those likely to impact the economy and markets moves.
"If you are worried, the key transmission mechanism for textured political environments towards markets is by commodity prices," she said.
Kyrklund provided the example of Ukraine, where the impact of the conflict transmitted into higher commodity prices.
That is why, if investors are worried about geopolitical impacts, she said "the obvious diversified position has some kind of exposure to commodities".
And with the path of interest rates set to start declining this year, the group CIO said there are plenty of opportunities in both equities and bonds.
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"The good news is valuations are not expensive," she argued, noting how even the ‘Magnificent Seven' tech stocks in the US are "not particularly expensive", especially when compared to the bubbles of the late 1990s and early 2000s.
"So, actually, it is an okay environment for equities," Kyrklund said.
Similarly, she noted bonds are "a lot more diversified than they used to be" and are offering a yield which she described as "interesting", also because fixed income tends "to do well with rates coming down".
Despite the numerous conflicts and turmoil in the world at the moment, she said it is important to discern worries according to whether they may impact portfolios.
"Overall, rates are coming down, we are not expecting a recession in the US, corporate balance sheets are still strong and valuations are not stretched," she added.
