GLOBAL - Geopolitics will again become an important factor for investors to consider following 25 years of lesser focus on the issue, the president of the Canonbury Group and Principalis Asset Management has argued.
Speaking at the CFA Institute Annual Conference in Edinburgh, Pippa Malmgren said investors had forgotten about the "peace dividend" that has been in place since the fall of the Berlin Wall.
"People cannot go along saying events [in the Middle East and North Africa] are a Black Swan," he said. "Most of the geopolitical events we've seen could have been anticipated."
Malmgren, a former member of the US National Economic Council, said food inflation was the real culprit.
"Tiananmen Square didn't happen one day out of the blue, it happened when there was 14% inflation," she said. "Inflation has become the catalyst, the spark that makes people want change."
And inflation will continue in emerging markets, she said.
"Hedge funds are long the so-called breakfast complex, the complex grams and pork bellies," she said.
"Most people managing money today have not experienced inflation or prices going up for reasons other than demand, such as the supply side being squeezed."
She says emerging markets are suffering from inflation that is higher than official figures.
"In China, inflation is closer to 10%, and in India and Bangladesh, the cost of a chilli has gone up 300%," she said. "That's why workers in emerging markets are fermenting. It is about unfairness in their society."
The trends come at a time of rising oil prices, with the 15 largest US companies buying their inputs three months in advance to protect against future cost rises.
Politics will affect how the debt burden in the West is negotiated and whether there will be defaults because politicians will come under pressure, she argued.
"You can no longer say geopolitical risk cannot be quantified, and so it doesn't matter," she said.