Institutional investors see geopolitical bad actors as the biggest economic threat for 2024, according to a survey conducted by Natixis Investment Managers.

The firm surveyed 500 institutional investors, in 27 countries throughout North America, Latin America, UK, continental Europe, Asia and the Middle East. Geopolitical bad actors was voted the biggest economic threat for the year ahead by 49% of respondents.

Natixis said that after seeing how the early stages of the Russian invasion of Ukraine drove big price spikes for energy and food in 2022, institutional investors have “good reason for concern” as the geopolitical landscape is looking “less stable going into 2024”.

For those that put geopolitical bad actors as the biggest threat, 64% believe that China’s geopolitical ambitions will split the global economy into two spheres of influence. Those same ambitions diminish China’s investment appeal for 73% of institutions.

More than seven in 10 investors think the fragmentation between Brazil, Russia, India, China, and South Africa (BRICs) and the West will continue and they worry about the growing alliance between Russia, North Korea and Iran, which 70% believe will lead to greater economic instability.

Few expect tensions to decline in 2024, particularly when 76% say the outcome of Russian elections won’t change the status quo.

After two years of war in Ukraine, few institutions see the end in sight as 80% believe the war will grind on during 2024.

Alongside worries about the economic threat posed by geopolitical bad actors, the survey found that institutional investors around the world are also concerned about slowing consumer spending (48%), with 51% believing recession will be inevitable in 2024. This was followed by central bank policy error for 44% of participants, with the Chinese economy for 30%, and China relations for 28% of respondents.

As a result of the geopolitical and economic uncertainty, 59% are projecting higher levels of volatility for equity markets, while 39% see a similar uptick for bonds.

Overall, market projections for 2024 show institutional investors are bullish on just three asset classes: The bond market (69%), private equity (64%) and private debt (60%).

The view on equities is less clear, with 54% “bearish” on the prospects for stocks in 2024 and 46% bullish, Natixis research showed.

Artificial intelligence

After a tough run in 2022, technology returned to form in 2023 to emerge as the best performing sector. In the same timeframe artificial intelligence emerged as the hot new theme as many found themselves engaging in conversations with OpenAI’s ChatGPT.

Institutional investors are finding both advantages and disadvantages in the rapid progression of AI. On one hand, 75% believe AI will unlock investment opportunity that was otherwise undetectable. On the other, almost four in 10 (38%) worry that AI poses an existential threat to civilization.

In expressing their views on the implications of AI, institutions define it more in terms of the film Moneyball (50%) than Terminator (6%), saying it’s just a new tool for analysing data rather than a key opening the door to a dystopian future.

But fitting for this year of uncertainty, 35% define AI in terms of the film War Games, worrying a hacker could set off geopolitical, economic, or social turmoil, precisely the kind of economic risk they’re worried about in 2024.

Overall, 81% worry that it will be difficult for any country to regulate AI effectively, and about four in 10 (39%) participants struggle with the downside saying that the risk of AI outweighs the opportunity it presents.

However, 61% think the opportunities are greater than the risks. Along with unlocking undetectable opportunities, 63% believe it will be instrumental in detecting hidden portfolio risks as well.

Darren Pilbeam, managing director and head of UK sales at Natixis, said that institutional investors have had a lot on their plate this year and sentiment shows that 2024 continues to be filled with uncertainties, as higher for longer rates and inflation remain top portfolio risks for investors.

However, he said that while there are plenty of macro questions to consider, many of these are being anticipated and accounted for in investors’ portfolios.

He said: “It is the unforeseen events spurred by political bad actors that are causing the biggest concerns.

“To navigate the multitude of headwinds investors are backing their active allocations, resulting in few lowering their assumed rate of return for 2024, and long-term return expectations remain solidly at 8% on average,” he noted.

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