By Nell Mackenzie
LONDON (Reuters) – Financial markets are too complacent about risks around an expected shift in U.S. monetary policy, political uncertainty in the United States and geopolitical tensions with China, an investment chief at one of the world’s biggest hedge funds said on Tuesday.
Bridgewater Associates’ co-chief investment officer Greg Jensen told a Davos forum that markets were taking a risk by pricing in, or assuming the full effects of, a U.S. Federal Reserve pivot.
Bridgewater Associates has roughly $125 billion in assets under management, as of mid-2023.
Since early March 2022, the Fed has rapidly raised its benchmark policy rate from the near-zero level to the current 5.25%-5.50% range. In December, however, the U.S. central bank suggested that monetary tightening was likely over.
For inflation to decline further, economic growth needs to weaken and this was not priced into equity markets, Jensen told a panel on potential financial vulnerabilities at the World Economic Forum in Davos.
He said he did not see risk accurately priced in longer dated U.S. government bonds nor the risk of default appropriately accounted for in corporate bonds, either.
Jensen added that markets were also not pricing in the risk of “two cold wars brewing”.
These included “the cold war with China and the internal cold civil war going in the U.S. that is going to play out dramatically over the course of this year”, he added, referring to the run-up to the U.S. presidential election.
Jensen and Lim Chow-Kiat, CEO of Singapore sovereign wealth fund GIC, also on the panel, meanwhile expressed concern about the impact of de-globalisation.
Chow-Kiat described the fragmentation of the world’s supply chains as a trend that was “non-reversible”.
“The implications are not great for investors, for sure,” he said.
The use of artificial intelligence (AI) might also introduce further risk to markets when used in a destructive manner to mislead market participants, the panelists said.
“AI is a data-driven trend. If you have good data, you’ll have good outcomes. If you have bad data, this could result in introducing significant volatility into the system,” said Lynn Martin, president of the New York Stock Exchange.
(Reporting by Nell Mackenzie; Editing by Dhara Ranasinghe and Susan Fenton)