Amundi: "Geopolitical Risk at Highest Level Since World War II"

Amundi Investment Institute, the research arm of Amundi—Europe's largest asset manager—has concluded in a new in-depth geopolitical report that current geopolitical risk has reached its highest level since the end of World War II.

On July 28, NH-Amundi Asset Management announced that Amundi Investment Institute, the research division of its second-largest shareholder Amundi, has published the comprehensive geopolitical report titled "Investing in a Low-Trust World."

In the report, the institute diagnoses current geopolitical risk as the highest since the end of World War II, analyzing that geopolitics has become a variable that constantly drives the macro environment and capital flows rather than simply serving as an occasional source of volatility. This conclusion is based on the fact that the number of armed conflicts is the greatest since the end of the Second World War, while diplomatic efforts are struggling to resolve these disputes.

The report identifies the "collapse of trust" as the key theme running through the current international order, pointing out that this has led to accelerated increases in national defense spending and the weaponization of economic tools. Indeed, according to the Stockholm International Peace Research Institute (SIPRI), as of April of this year, global military expenditures have risen by 41% over the past decade even after excluding inflation. Additionally, the United States is pressuring China’s energy supply by imposing sanctions, export controls, tariffs, and blocking Venezuelan oil, while China is responding with export controls on critical goods. The European Union is similarly strengthening the trend of economic weaponization among resource-rich and major nations, for example by introducing anti-coercion instruments (ACI).

Amundi Investment Institute identified five pillars of the changing investment environment in this low-trust era: increased fiscal spending, higher sovereign credit risks, persistent volatility, a rise in risk premiums, and growing gaps between countries and industries.

In the stock market, the institute anticipates that resilience and supply chain control will become key criteria for stock selection. As a result, companies involved in energy independence (solar power, nuclear, and power grid industries), technological sovereignty (domestic servers, satellite security, and in-house semiconductor development), defense, and pharmaceutical production are likely to be promising. It also notes that how companies configure their supply chains and their geopolitical vulnerabilities have become decisive factors for corporate value.

For the bond market, the report expects that government fiscal health will be the main driver of interest rates over the next 10 years. With increased government bond issuance and rising funding costs, a structural premium is likely to be added to long-term interest rates; furthermore, the traditional role of long-term government bonds as a buffer against risk asset losses in times of crisis may be weakened.

Anna Rosenberg, Head of Geopolitics at Amundi Investment Institute, said, "Volatility is no longer an exception but a rule in financial markets," emphasizing that "geopolitics constantly influences the factors underlying investment decisions."

Monica Defend, the head of Amundi Investment Institute, added, "In a low-trust world, investors must diversify in fundamentally different ways than before," and said, "Beyond just asset classes, investors must also consider geography, currency, supply chain exposure, policy environment, as well as both geopolitical vulnerabilities and opportunities."

This content was produced with the assistance of AI translation services.