Diverging economies

Globally, international trade, capital flows and supply chains are becoming fragmented. This is causing economic blocks to form. Additionally, demographic trends are leading to shrinking labour support. As CFA Institute found, firms need to reassess their global footprint and adapt their services and product offerings to be more competitive and effective in the markets in which they operate.

BlackRock’s Investment Institute sees multiple potential long-term outcomes from the economic tug of war and is using scenarios to better inform its strategic views and identify opportunities.

Sustainable finance and ESG

Too often, sustainable finance and ESG are used synonymously, but they are not the same. Sustainable finance is under the umbrella of environment, social and governance (ESG). Governance has been a part of most organizations for a long time, but environmental and social issues are relatively new evaluation frameworks. All investors can apply the underlying ESG principles to manage risks and identify opportunities in their portfolios.

For example, Fiera Capital integrates ESG principles into every stage of the investment process and has strengthened its reporting on ESG by focusing on each aspect separately and finding opportunities to invest in projects that align with ESG objectives and therefore create long-term value.

While it’s good to know the key trends, what is more crucial is learning how to prepare for them in terms of anticipating market movements, managing investor expectations and implementing risk management controls. Some actionable insights are summarized below.

Financial risks to anticipate and manage

All the trends discussed above are important, but what types of financial risks do they pose? Quite often, market volatility, economic inflection points, liquidity disruption and balance sheet strength are tested. It is essential to understand exposures, manage potential asset and liquidity duration mismatches and have access to reliable funding sources. Stress testing balance sheets, especially for short term horizons, is key to managing against dynamic market shocks. As markets undergo various cycles, companies must be willing to adapt to innovations and developments.

Investors do not trust, nor do they appreciate cheerleader investor relations teams where it’s always sunshine and roses.

Managing investor relations through the ups and downs

areas where expertise or knowledge about the markets and their impact on valuations is lacking.

Risk management and internal controls

Risk awareness and management should be integral to the decision making process, rather than a back-end compliance step. Make it part of the company culture and integrate it into the entire organization. Given technological advances, particularly in AI, managing security and regulatory oversight at any firm is crucial, especially in mitigating third-party dependencies.

Portfolio management and currency risk

Increasing portfolio returns and managing portfolio risk can be achieved by diversifying across geographies and asset classes. Private markets and real assets can be a good source for managing currency risk and hedging against inflation, as they can be purchased with local or foreign currency and managed with local expertise, while the income from them can be immediately converted into a more stable currency. At Fiera Capital, dedicated portfolio managers, each focused on their strategy, bring expertise that allows them to create value across the full spectrum of investment solutions.

Additionally, sustainable finance and ESG can be useful and material factors in influencing risk and opportunities of a given investment. AI could be a valuable tool to help understand the unstructured data in this space. All these actions collectively contribute to making better decisions.

Firms need to reassess their global footprint and adapt their services and product offerings to be more competitive and effective in the markets in which they operate.

Conclusion