Threadneedle has responded to rising geopolitical tensions by shifting its asset allocation away from equities and towards cash, according to chief investment officer Mark Burgess.
Burgess says the increased tension in the Middle East and the resultant rise in oil prices is a growing concern, while the lack of resolution to the eurozone debt crisis creates the risk of “unexpected political outcomes”.
The asset manager has gone overweight cash in its multi-asset funds. In addition, the overweight to Asia-Pacific equities has been cut by 50 basis points to 0.5% as the region remains exposed to risk on/risk off sentiment.
“In a number of currencies, oil is now trading at an all-time high and is in danger of becoming a head wind to the fragile recovery being seen in the developed world,” Burgess says.
He also points out that further increases in oil prices are likely to damage investor risk appetite and harm consumer confidence in the US – which is a rare source of good economic news. (article continues below)
Oil prices have touched highs in recent days, driven by the possibility that Iran could stop oil moving through the strait of Hormuz in retaliation to the European Union’s embargo. In addition, supply outages in the North Sea and high Asian demand has supported price rises.
Burgess continues: “The potential for an unintended political outcome in Europe remains high and I remain concerned by how profoundly un-democratic the fiscal compact is in its design and implementation.
“This is likely to lead to further volatility and potentially unexpected political outcomes.”