Geopolitical volatility reinforces diversification explains Amundi deputy group CIO
We are in an era of “controlled disorder” and geopolitical ruptures are here to stay. That’s the view espoused by a recent investment outlook published by Amundi in the wake of President Donald Trump’s bellicose threats to control Greenland. While tensions have pulled back from their heights, the view taken by the French asset management giant is that global diversification is more important than ever and that a more widely diversified approach can help advisors and their clients stay invested despite the fear that geopolitical volatility might induce.
Philippe d’Orgeval, Deputy Group CIO at Amundi, spoke to WP about how that volatility in geopolitics plays in an economic environment that still has positive growth tailwinds. He noted how the pursuit of strategic autonomy and trade diversification by and between regional blocs can help offset some of this geopolitical uncertainty in the long-term. In the short-term, he argues, messaging around macro tailwinds and appropriate diversification can help advisors keep their clients invested.
“For us, there is a change in the world order that we see clearly from the big blocs: the US, Europe and China. There is clearly a focus on strategic autonomy on many aspects, which includes defense, energy, technology, and, more importantly, resilience in the supply chain,” d’Orgeval says. “So we see that it's taking place and creates tension, risk, uncertainty and changes in terms of positioning, and I think it's also what is behind these different moves from the different blocs.”
Europe’s recent conclusion of a commercial agreement with India, d’Orgeval notes, serves as a reflection of how regional powers are responding to the impact that geopolitical action like tariffs and territorial claims can have on markets. While outward action speaks to this shift, there is also an inward-looking push. Europe’s leaders are meeting later in February to discuss how Europe can become more competitive, reconciling views on the subject espoused by the Drahgi and Letta reports. All of this action coming in the wake of Trump’s threats to take over Greenland show, in d’Orgeval’s view, an impulse to diversify trade and improve domestic competitiveness in order to smooth out the economic and market impacts of this “controlled disorder.”
While geopolitics will be a persistent risk for investors, d’Orgeval is also quick to highlight some of the macro tailwinds for investors. There is resilient growth in the background, as well as central bank easing in the US and Europe which should be supportive for liquidity and a somewhat risk-on position. Geopolitical fragilities, d’Orgeval argues, should be an impetus towards diversification. He notes that beyond US relations with its allies, the high level of fiscal spending in many developed countries presents a risk that could influence interest rate levels and inflation as countries try to make that debt more manageable.
Geopolitical tensions also exacerbate the fragilities of stretched equity valuations, d’Orgeval argues, which supports a further diversification into more attractive valuations. He notes the example of the AI theme, which has largely driven concentration in a few highly valued US technology names. He notes that diversification away from those ‘hyperscalers’ towards other parts of the AI value chain could prove effective. That could mean utilities, industrials, or renewable energy companies. It also could include other geographies and sectors innovating on AI, notably Chinese technology names. As AI winners and losers start to manifest, d’Orgeval argues that diversifying exposures can help the retail market manage those shifts.
Volatility offsets can be valuable as well. Adding options and futures into equity exposures may help add “convexity” in the face of market drawdowns. Commodities are also a notable hedge. Despite recent price volatility, d’Orgeval argues that the long-term case for gold exposures remains intact, in large part because of central bank de-dollarization in favour of gold holdings. Gold, he says, ought to still carry something of a geopolitical risk premium, even in periods of relative calm. Silver, he says, may still carry more volatility, but an exposure to gold and copper can be helpful from a portfolio construction standpoint.
In watching to assess how geopolitics will shape markets, d’Orgeval says there is no single “canary in the coal mine” that advisors should be listening for. Instead he begins from a macro view across global markets to understand what phase we’re at in the cycle. His team takes on board geopolitical risks and asks if they will influence the macro framework, all while incorporating the challenge of time horizons and regional market variations. It’s a constant effort.
For advisors seeking to navigate all this nuance for their clients, d’Orgeval stresses the positive tailwinds out on the market now.
“There is a positive backdrop. Central banks are still easing in Europe and the US. We also see all those CapEx investments in strategic autonomy, and this relates to defense and AI and fuels EPS growth opportunity,” d’Orgeval says. “There is an opportunity to be mildly risk on, but we know there are key fragilities. Valuation concentration is where you have to be invested in a very diversified way… When we take additional risk, we tend to take it where the valuation is not as stretched.”
