How are geopolitical dynamics changing the way investors approach fixed income as an asset class? Is it becoming reactive rather than predictive? 
Our approach has fundamentally shifted. Prior to 2021, our strategies centered primarily on analysing macroeconomics, central bank policies, and national political trends.
Today, however, international politics and geopolitical risk analysis command a substantial share of our strategy formulation. This shift is only natural, given that trade and inflation data, the very foundation of macroeconomic forecasting, are now heavily dictated by geopolitical dynamics.
On the other hand, the market still appears largely reactive to geopolitical developments. The situation in the Middle East is a prime example. While some initial optimism anticipated an early ceasefire, a deep analysis of the local political structures, history, and the underlying ideologies of key figures made it clear that the hurdles to a ceasefire agreement were exceptionally high.
However, in an environment where nations disseminate information to suit their own narratives and social media is flooded with noise and uncertainty, we surmise that many investors had little choice but to react to immediate events. Distilling credible insights from a vast sea of information, forecasting the future, and effectively translating those insights into positioning will ultimately differentiate the superior managers of tomorrow.
How does the trading desk distinguish between short-term geopolitical noise and developments that could have a lasting impact?
When distinguishing between short-term noise and long-term trends, we focus on whether an event directly signals a structural turning point in the global economy and supply chains.
The framework of ‘globalisation prioritising efficiency and free trade’ – which have driven the world economy for decades – is now undergoing major adjustments. This extends beyond social issues like wealth gaps or immigration to macroeconomic structural changes, such as the rebalancing of national security and economic interdependence among major powers, a clear shift toward economic security.
Recent geopolitical tensions, supply chain disruptions, and resource sanctions are not sporadic accidents. We view them as structural transformations occurring in the transition from efficiency-driven globalisation to a post-neoliberal trend prioritising the security of one’s country and allied blocs.
Events backed by these macro-trend reversals exert long-term, evolving impacts on markets. Conversely, localised political shifts or transient regional conflicts that do not tie into these structural changes are filtered out as short-term noise. Ultimately, the underlying context of why an event occurred is what matters most.
What’s the number one topic being discussed among the execution team currently?
In our case, to maximise information efficiency, we maintain a highly integrated structure between our portfolio managers and the execution team because we believe that raw information directly from the market is also highly valuable.
When constructing strategies based on the analysis of international politics and geopolitics, investment opportunities in relatively smaller countries tend to increase, which naturally brings ‘ensuring liquidity’ and ‘expanding broker networks’ to the forefront as critical topics in execution.
Against this backdrop, we are seeing growing interest in emerging markets across Latin America and Asia recently, and I feel this perfectly supports the transition to the ‘new structural trends’ mentioned earlier.
Looking ahead, which geopolitical developments do you expect to have the biggest impact on the fixed income market over the next 12 months?
We are most closely monitoring phases where the military and political balance shifts in key geopolitical chokepoints. In the Middle East, for instance, domestic issues like severe droughts and climate risks served as triggers to lower existing deterrence thresholds, shaking the geopolitical balance and inducing sudden military actions and a chain reaction of tensions.
We believe the situations in Russia-Ukraine and the Middle East are reaching a critical turning point this year. Especially when aligned with major global election cycles, historical patterns show that conflicts and tensions tend to temporarily intensify and complicate due to shifting political motives. We must remain vigilant that these shifts could collapse the military balance and trigger further conflicts.
Over the next 12 months, we view this as the most critical risk to watch, as it could unexpectedly disrupt energy prices and supply chains, driving a sharp spike in fixed-income market volatility.