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Geopolitical tensions – the risks for investors

Past performance does not predict future returns. You may get back less than you originally invested. Reference to specific securities is not intended as a recommendation to purchase or sell any investment.

An apparent Chinese spy balloon shot down on American soil, followed by further unidentified flying objects in the days that followed, have seen US-China relations plumb new depths in recent weeks. This activity has been followed by news of a high-level Pentagon official’s visit to Taiwan – the first since 2019. But what does this mean for investors looking to China and Asian markets more generally? Is there trouble ahead?

Although the timing of the Taiwan trip looks likely to ratchet up tensions between the US and China, the temptation is to set aside the prospect of any significant further escalation as extremely unlikely.

However, it’s a brave person who discounts any possibilities in geopolitics. As we approach the anniversary of Russia’s invasion of Ukraine, the conflict is once again on the front pages after President Biden’s secret visit to Ukraine and Putin’s subsequent anti-West outburst and withdrawal from the New Start nuclear arms treaty.

At the start of 2022, the prospect of a war on the fringes of Europe seemed close to unthinkable. It is probably now best characterised as a ‘black swan’ event of the type that few would have predicted – think the Covid-19 outbreak or Global Financial Crisis.

As John Husselbee – Head of the Liontrust Multi-Asset team – notes, it is very difficult to predict how potentially volatile situations may pan out, even once events are in train, as they are in Ukraine.

He adds: “Our approach has always been to mitigate the impact of geopolitical risks by targeting sufficient diversification across our funds and portfolios.

“For this reason, we have not made any changes in our asset allocation based on the likelihood of a conflict between China and Taiwan.”

While it is a thankless task to try to build a portfolio that is immune from macroeconomic instability, a framework of diversification should give investors confidence that they can target the most attractive investment opportunities globally, knowing that low or negative asset class correlation can mitigate the impact of big shocks.

Husselbee continues: “We continue to look closely at China from an economic perspective, given that it is such an important driver of growth. If China can successfully keep its economy open without having negative impacts on the health of the population, then this will be a positive for the rest of Asia and the world in general.

“While we are seeing increasing moves towards contracting globalisation, Asia is becoming wealthier and, therefore, is less dependent on the rest of the world for its economic development. Asia will also benefit from a weakening US dollar and a further positive for investors comes from relative attractive stock market valuations across the region. I’d also argue that Asia and central banks in emerging markets have taken more of a traditional approach to monetary policy than the West, and, as such, are arguably in better shape. This is particularly true of the more commodity-rich countries and regions.”

The Liontrust Global Fundamental team agrees that the prospects for Asia look bright, although fund manager Ewan Thompson highlights India as his pick in the region:

“Set to shortly overtake China as the world’s most populous country, India enjoys a hugely more attractive demographic profile than its key Asian economic rival. Indeed, China has recently seen its population decline for the first time since 1961. China’s rapidly ageing population and worsening dependency ratio is in stark contrast to India where 25% of the population are under the age of 14 and more than two-thirds of Indians are of working age.”

He adds: “Meanwhile only about 7% of the population is above the age of 64 against China’s 12.4%. With continued political stability and a multi-year investment cycle picking up, we believe that the next decade in emerging markets firmly belongs to India.”

Understand common financial words and terms See our glossary

Past performance is not a guide to future performance. The value of an investment and the income generated from it can fall as well as rise and is not guaranteed. You may get back less than you originally invested.

The issue of units/shares in Liontrust Funds may be subject to an initial charge, which will have an impact on the realisable value of the investment, particularly in the short term. Investments should always be considered as long term.

Some of the Funds and Model Portfolios managed by the Multi-Asset Team have exposure to foreign currencies and may be subject to fluctuations in value due to movements in exchange rates. The majority of the Funds and Model Portfolios invest in Fixed Income securities indirectly through collective investment schemes. The value of fixed income securities will fall if the issuer is unable to repay its debt or has its credit rating reduced. Generally, the higher the perceived credit risk of the issuer, the higher the rate of interest. Bond markets may be subject to reduced liquidity. Some Funds may have exposure to property via collective investment schemes. Property funds may be more difficult to value objectively so may be incorrectly priced, and may at times be harder to sell. This could lead to reduced liquidity in the Fund. Some Funds and Model Portfolios also invest in non-mainstream (alternative) assets indirectly through collective investment schemes. During periods of stressed market conditions non-mainstream (alternative) assets may be difficult to sell at a fair price, which may cause prices to fluctuate more sharply.

Investment in funds managed by the Global Fundamental Team may involve investment in smaller companies. These stocks may be less liquid and the price swings greater than those in, for example, larger companies. Some of the funds may hold a concentrated portfolio of stocks, meaning that if the price of one of these stocks should move significantly, this may have a notable effect on the value of that portfolio. Investment in the funds may involve foreign currencies and may be subject to fluctuations in value due to movements in exchange rates. Some of the funds may invest in emerging markets/soft currencies and in financial derivative instruments, both of which may have the effect of increasing volatility.


This is a marketing communication. Before making an investment, you should read the relevant Prospectus and the Key Investor Information Document (KIID), which provide full product details including investment charges and risks. These documents can be obtained, free of charge, from www.liontrust.co.uk or direct from Liontrust. Always research your own investments. If you are not a professional investor please consult a regulated financial adviser regarding the suitability of such an investment for you and your personal circumstances.

This should not be construed as advice for investment in any product or security mentioned, an offer to buy or sell units/shares of Funds mentioned, or a solicitation to purchase securities in any company or investment product. Examples of stocks are provided for general information only to demonstrate our investment philosophy. The investment being promoted is for units in a fund, not directly in the underlying assets. It contains information and analysis that is believed to be accurate at the time of publication, but is subject to change without notice. Whilst care has been taken in compiling the content of this document, no representation or warranty, express or implied, is made by Liontrust as to its accuracy or completeness, including for external sources (which may have been used) which have not been verified. It should not be copied, forwarded, reproduced, divulged or otherwise distributed in any form whether by way of fax, email, oral or otherwise, in whole or in part without the express and prior written consent of Liontrust.

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