Geopolitics? What geopolitics?

Aiden Reiter (0:00)

Hey, listeners, for the holiday season, we're going to do an episode where we answer your questions. So send them to unhedgedatft.com.

Katie Martin (0:14)

Pushkin. Markets are really, really bad at reading geopolitics. And if you needed a reminder of that, I can tell you I talked to a lot of investors and precisely zero of them had mentioned South Korean martial law or the fall of the Syrian dictatorship as big events to watch out for recently. Now, one argument here is that emerging market investors are somewhat better than developed market peers at figuring this stuff out, working out how it might affect portfolios. But today on the show, we're asking, why do investors miss this stuff? They always say geopolitics are a risk, but they always miss these things. Does it really matter? Not in like real life, of course, all this stuff matters in real life, but in market terms. This is Unhedged, a markets and finance podcast from the Financial Times and Pushkin. I'm Katie Martin, a baker of mince pies and a markets columnist here at rather festive FT Towers. We've got a nice tree in reception. Christmas party tonight. I'm joined down the line by the very lovely Aiden Reiter, who's the guy who does all the hard work on the Unhedged newsletter so that his boss doesn't have to. Aiden, do you know what a mince pie is?

Aiden Reiter (1:28)

It's a pie with really weird chopped up fruit in it. I mean, it's like meat like fruit, is that right?

Katie Martin (1:35)

Meat like fruit. Well, I'm not sure what fruit you're thinking of, but the category error that Americans always make in relation to mince pies, which are things that we eat at Christmas time only, they're small little mince pies, small little pies, is that they don't have mince in them. They don't contain meat at all. They contain like dried fruit and some nuts.

Aiden Reiter (1:57)

Exactly. Meat like fruit, right? Dense and-

Katie Martin (2:00)

And booze, meat like fruit. If you are in London at some point at Christmas time, I will give you one of my mince pies. I make lots of them every year.

Aiden Reiter (2:09)

Thank you. I can't wait.

Katie Martin (2:10)

But we digress. So geopolitics, do markets care about geopolitics? There's just been lots of things this year that you look around, you look at the situation evolving around Israel, for example, and you come to the conclusion that like, no, not really. I mean, am I wrong?

Aiden Reiter (2:28)

I mean, markets care about geopolitics in some specific cases. And we should definitely say that within individual countries, indexes and their companies, they definitely matter a lot. But, you know, in this US-dominated market, where everybody's focusing specifically on companies in the US and companies that operate abroad but are based in the US, oftentimes the market is able to shrug them off.

Katie Martin (2:47)

So a few years ago, if you'd said to me that, like, what was happening in kind of Gaza, Lebanon, with the involvement of Iran, like, that is like a slam dunk reason to get out of risky bets and to run into havens. And this year, it's just really not happened. Like, why do you think that's the case?

Aiden Reiter (3:06)

Well, I'll say on Israel, yes and no, it matters. I mean, Israel already has a volatile stock market and there's some really strange counterintuitive things that have made the stock market rise in the past couple months, as opposed to just uniformly fall while the war has been going on. And that is more about strange economic policy that coincides with wartime. Also the fact that the war is not being fought, not within main Israeli commercial corridors, for lack of a better term. But anyway, yeah, it's interesting. I think the place we typically see geopolitics playing out in the broader market is in oil. But especially in the past couple years, investors have learned to really shrug off what's happening in the Middle East and Russia because they've learned, essentially from hard experience, that the geopolitics doesn't always matter. It's just when you have the chance of something becoming even worse that the market tends to take it into account. So, for example, we wrote and we spoke about the other day about oil. The oil market has been mostly calm despite crazy things going on in Israel and now in Syria. And it's really only jumped when it seemed like Israel and Iran were going to get into a larger conflagration that could pull the entire Middle East in. But for the most part, investors have shrugged it off and they've shrugged off Syria too. Right? I think the oil market moved 1% the day that Assad regime was toppled.