Individual Investors

Insights

No More Safe Havens?

08/10/2016

The UK’s vote to leave the European Union (EU) has put the spotlight on the interplay between politics and financial markets. As political risk increases across Europe and the U.S., investors may need to rethink the concept of safe havens. Fearing the economic consequences of Brexit and the U.S. presidential election, investors have sought the security of government bonds. But if political risk worsens, even these assets could come under threat. Which begs the question: Do investors need to start rethinking the concept of so-called “safe-haven” assets?

Key Points:

  • The fallout from the UK’s vote to leave the EU illustrates how political risk – once regarded as the safe sanctuary of emerging markets – is now a pressing concern for investors in the developed world. 

  • With the rise of populist political movements in Europe and in the U.S., investors may need to look in new areas to protect their capital and diversify returns.

  • Investors are increasingly seeking emerging market assets, where political risk is often priced in.

  • In an environment of heightened political risk, the notion of a single safe haven to which investors flee in all circumstances may be becoming an outmoded concept. 

  • Diversification, and the flexibility to shift portfolios in response to political developments, is becoming more important.

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