Investors should not labour under the delusion that investment markets sit in an “ivory tower” apart from geopolitical risk, Bob Swarup has warned.
Swarup, founder and principal at Camdor Global, said the admission by Norway’s Government Pension Fund Global and APG that they were monitoring their holdings in Russia over the situation in Ukraine did not reflect an appreciation of geopolitical risk.
Writing in the current issue of IPE magazine, he said the considerations – alongside divestment by PFZW from several Israeli banks – instead reflected the growing importance of both environmental, social and governance (ESG) matters and political activism to investment decisions.
The growing importance of political activism comes despite many pension investors remaining concerned that an activist stance could damage investment returns.
“The current mantra among investors is to view these tremors as transient dislocations and buying opportunities,” he writes. “The Ebola mini-panic owes more to weak manufacturing data, and, in the meantime, related healthcare stocks have surged.
“This is cognitive dissonance in action. It is the result of 60 years of general political and social stability, which has deluded markets into extrapolating these perceived patterns into the far future.
“Markets are deemed to sit in an ivory tower, unsullied by the murkier world beyond. But, ivory or not, the tower and the world share a common foundation.”
Swarup, who is also a fellow of the UK Institute of Economic Affairs and has advised the country’s pension regulator, argued that the last few decades were an “aberration”.
“You cannot divorce economics from people, politics, geography and society,” he says. “The norm historically is that these have all been important influences on the course of money and economies.”