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Investing When Market Volatility, Geopolitical Upheaval Are Normal - Merrill Lynch White Paper

Harriet Davies

26 June 2012

Merrill Lynch Wealth Management and Eurasia Group are releasing a white paper designed for a world where “market volatility is normal and global conditions are changing rapidly,” the firm said.

The paper, The Great Global Shift: Seeking Growth in a G-Zero World, proposes that the US, China and Europe are “unable or unwilling to take on the burdens of true global leadership,” leaving a leadership vacuum.

“It has become a ‘G-Zero’ world and looks to remain that way for years to come, creating an ever-increasing need for investors to understand the geopolitical forces that can influence the markets,” said Merrill Lynch.

“Investors might consider flexible investment approaches” and more global diversification to cope with a global economy attempting to rebalance, said Lisa Shalett, one of the paper’s authors and chief investment officer for Merrill Lynch Wealth Management.

The paper suggests that the more diverse a country’s trading partners are, the more easily it can adapt to geopolitical change. Countries that lead in this effort include Canada and Australia, emerging markets like Indonesia and Brazil, and frontier nations such as Nigeria, Kenya and Ghana, it says.

For investors, the paper suggests extending global horizons “even further” through direct exposure to international markets; more frequent rebalancing, as once a year “may no longer be enough”; focusing on companies over countries; hedging currency risk, and being vigilant about “taxes, inflation and fees.”