Dynamic Allocation Strategies Team

Geopolitical Analysis

Geopolitical developments can impact market and currency prices—and client portfolios—over the short- and medium-term. We use a game-theoretical framework to navigate these macro events.

WHAT WE BELIEVE

Long-term fundamental analysis is the team’s foundation, but fundamental analysis alone is not sufficient for global macro investors.

Geopolitical developments can impact market and currency prices—and client portfolios—over the short- and medium-term. Our team uses a game-theoretical framework to navigate macro events, which helps us:

  • Assess strategic interactions of multiple players
  • Better understand negotiations and related investment implications
  • Dynamically increase or decrease portfolio risk exposures

WHY THIS MATTERS

Geopolitical situations, such as the U.S. presidential election and Brexit, influence market and currency prices—as well as investment portfolios. One of our current geopolitical game theaters is focused on Asia, where a long-standing, multi-player negotiation about both trade and security involves Asian countries as well as the United States.

SEE WILLIAM BLAIR’S DYNAMIC ALLOCATION STRATEGIES

Macro Allocation
Top-down portfolio that seeks to capitalize on fundamental opportunities through active management across asset classes, geographies, currencies, and risk themes. Structured to average low beta to global equities over full market cycle. LEARN MORE

Dynamic Diversified Allocation
Top-down (macro) and independent security-selection approaches combined in a portfolio that seeks to capitalize on fundamental opportunities through active management across asset classes, geographies, currencies, and risk themes. Structured to average low beta to global equities over full market cycle. LEARN MORE

Global Diversified Return
Top-down (macro) and independent security-selection approaches combined in a portfolio that seeks to capitalize on fundamental opportunities through active management across asset classes, geographies, currencies, and risk themes. Structured to average moderate beta to global equities over full market cycle. LEARN MORE

Absolute Return Currency
Absolute return, market neutral approach that seeks to capitalize on fundamental opportunities across a broad universe of global currencies. Structured to average no beta to global equities over full market cycle. LEARN MORE

China and the United States are two dominant powers competing for economic and geopolitical influence with each other and among many Asian countries. Jockeying for influence means using carrots and sticks relating to trade and to security issues. The probability that the dominant powers escalate their use of sticks directly upon each other is the primary focus now. In assuming further global leadership, China is taking a long-term view with increasing risk tolerance. Similarly, the U.S. acts with urgency to exert pressure while it deems it has leverage, given China’s increasing relative endowment power and influence. After signing a trade agreement focused primarily on goods (agriculture, energy, and manufacturing), a greater focus will likely  return to national security related issues around high tech leadership (5G, AI, Cyber, Huawei).

More specifically, the fallout from the virus and its economic pressures make nationalistic escalation more likely now in the lead up to the U.S. election. At the same time, further connectivity within the Asia region is likely to be seen should Japan acquiesce to finalizing the Regional Comprehensive Economic Partnership (RCEP) minus India in 2020 much as they also did the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) minus the U.S. in 2018.

NAVIGATING THE ASIA GAME THEATER

Investment Implications: Winner + Losers

  • Smaller ASEAN (in particular, Vietnam) markets and currencies may benefit on a relative basis from the current jockeying strategy of the dominant powers
  • Japan markets may benefit from sustained Prime Minister Shinzo Abe leadership and flexibility to pursue multi-country trade deals involving either dominant power
  • We believe that the medium term influence on China and U.S. markets is negative, with risks to the IT sector, in particular, growing
  • Incentives remain aligned for the limited trade agreement between the U.S. and China to stick, yet national security issues will likely become a greater focus
  • Primary security concerns of less dominant powers are at greater risk of nationalistic escalation

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