Lord Gerry says investors often struggle to understand and assess geopolitical risk, so it’s easier to ignore it until something catastrophic happens, making the risk unavoidable
As the US elections draw to a close with Donald Trump emerging victorious, global markets are bracing for the potential shifts in investor sentiment and policy direction. In a candid conversation with Outlook Business at the second edition of Gateway Gulf 2024, which ran between November 3-4, organised by Bahrain Economic Development Board (Bahrain EDB), Lord Gerry Grimstone, Chairman of Gemcorp Capital, shared his thoughts on how the outcome of the US elections could impact global markets.
He discussed the growing complexity of investment strategies, from geopolitical risks like the Israel-Gaza War to emerging market dynamics in India and China. Lord Gerry also emphasized the need for investors to remain agile as the world faces political uncertainty and evolving economic landscapes.
How could the outcome of the US presidential election influence global markets and investor sentiment worldwide?
Any election brings change and change requires investors to rethink their positions. This is especially true in the US right now, with such polarized choices. Whoever wins, there will be significant changes. Investors don’t have a crystal ball they cannot predict the future. They have to prepare for any outcome, putting in place risk mitigants and hedging strategies, while hoping things do not turn out worse than expected.
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We have two major conflicts right now, with the Russia-Ukraine war and the Middle East tensions involving Israel and Iran. Yet, markets in the US and even in India have been reaching all-time highs. Would you say investors are becoming more comfortable with the effect of wars?
To an extent, people have become a bit insulated from the effects of wars. Today’s complex global supply chains are more resilient. For example, if the Red Sea has been blocked by the Houthis in the past, it would have had a huge impact on the West, but now, with multiple alternative routes, that effect is less significant. However, the current situation is more concerning than investors realize. Investors often struggle to understand and assess geopolitical risk, so it’s easier to ignore it until something catastrophic happens, making the risk unavoidable. In cases like the ongoing wars in Ukraine and Gaza, no amount of analysis can provide a clear answer or an optimal investment position. It’s difficult to plan effectively in response to such unpredictable events.
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Foreign Institutional Investors (FII) holdings in India are at a decade-low. In the last month alone, foreign investors withdrew over $10 billion. What do you think is behind this decline in foreign investment, and are there specific factors where India is falling short in attracting FIIs?
I believe that’s a short-term situation. Back in 2007–2010, when I was chairman of Standard Life, we were the largest foreign investors in India. We partnered with Deepak Parikh at HDFC to set up HDFC Life and HDFC Asset Management. Under President Modi’s government, investment in India has increased substantially. In fact, India aimed to increase foreign investment tenfold over ten years—a very credible target. So, it’s inaccurate to say that India isn’t attracting investment. However, unexpected results from recent elections might have caused some pullback, but overall, India remains one of the world’s most attractive destinations for investment.
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Recently, China unveiled an economic stimulus package aimed at boosting its domestic economy. Do you think it could reduce international investors' interest in Indian markets?
I know China very well; I’ve been there over 300 times and used to chair a large international business in China. It’s a challenging market to access unless you really understand it. Currently, a lot of investment in China is domestically generated, and we see a similar trend in India. Both India and China have significant sources of domestic investment, so they aren’t as reliant on foreign funds. But it’s important to note that these two countries are very different from each other and much of China’s stimulus is focused on its own domestic market, consumer base, and banking system rather than on international investors.