Recent geopolitical conflicts are a symptom of the weakening of the global order following World War II, according to Pictet Wealth Management’s Dong Chen, who expects this trend to continue with significant implications for asset prices.

Globally, geopolitical risks have been on the rise in recent years including conflicts in the Middle East between Israel, Palestine and Iran as well as in Europe between Ukraine and Russia. According to Pictet, direct action between Israel and Iran has concluded at least for the time being while US aid has contributed to partial de-escalation in Ukraine. However, the longer term outlook remains uncertain. 

«It’s important to have this top-down view […] that all this is pretty much the symptom or the result of continued weakening of the post-WWII global order,» said Dong Chen, chief Asia strategist and head of Asia research at Pictet Wealth Management, at a media briefing attended by finews.asia. «Unfortunately, I think this trend will likely continue.»

Geopolitical Hedge

In terms of markets, one effect of geopolitical risks, particularly from sanctions and the weaponization of assets, has been the increased demand for gold. At Pictet, the bank maintains a strategic overweight position on the precious metal. 

«Despite the fact that the US dollar has been very strong this year, some other commodities have appreciated even more,» Chen commented. «Some of this, especially gold, could be a hedge against some of the geopolitical risks we are seeing. Some people also argue that the strong gold demand, especially from central banks, could be part of the de-dollarization trend.»

US-China Relations

Although Chen also expects intensified US-China tensions, he believes that even if Donald Trump wins the upcoming election and tariffs are introduced, the impact could be relatively limited compared to expectations.

Firstly, he said that the potential for 60 percent tariffs on Chinese imports is unlikely to materialize due to the damage to the US economy. Secondly, while direct Chinese exports to the US have fallen sharply since 2018, the global share of Chinese exports has not changed much, suggesting successful access to new markets and re-routing. 

«We’ve been doing some calculations on this,» Chen added. «Our rough estimate is that if you increase an additional 10 percent of tariffs on all Chinese goods, probably the damage to Chinese growth per year will be somewhere between 0.2-0.4 percent of GDP.»