Sydney – The world’s largest investment manager, BlackRock, has issued a warning about the worsening geopolitical backdrop for financial markets in 2024. Despite asset markets not fully appreciating the risks, BlackRock emphasizes the need to recognize the new geopolitical regime and the inadequacy of the previous playbook.
Fragmentation, Competition, and Less Cooperation
BlackRock expects deeper fragmentation, heightened competition, and reduced cooperation among major nations in the upcoming year. While broad stocks and other assets tend to rapidly move on from geopolitical events, BlackRock expresses concerns that they may not be fully appreciating the magnitude of the shifting geopolitical landscape.
Impact on Economies and Markets
The economic and market impact of geopolitical fragmentation will vary depending on whether changes to the global order are managed or disorderly, according to BlackRock. The investment group stresses the significance of effectively managing these changes to minimize potential disruptions to supply chains and rising production costs.
Persistent Risks
BlackRock’s assets under management surpassed $10 trillion in the fourth quarter, against analyst expectations. The company maintains its highest-level risk ratings for Gulf tensions and U.S.-China strategic competition.
Gulf Tensions and Supply Chain Disruptions
BlackRock highlights the risk of escalation in Gulf tensions and underscores the potential impact on global supply chains. The recent disruption in Red Sea shipping, evident in the Suez Canal incident, serves as an example of how conflicts can hamper supply chains and lead to increased production costs, particularly in shipping.
U.S.-China Strategic Competition
Regarding the U.S.-China relationship, BlackRock believes that intense and structural competition is now the norm, specifically in defense and technology sectors. The investment firm points out that Taiwan remains a significant flashpoint, as recent elections have shown.
In conclusion, BlackRock urges investors and market participants to carefully consider the evolving geopolitical landscape and adjust their strategies accordingly to navigate the challenges and opportunities it presents.