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Jan 13, 2023

Geopolitical tensions and the role of IR

Breakfast briefing panel on investor reaction to the Russia-Ukraine war and China’s zero-Covid policy shift

This year, geopolitical uncertainty is likely to continue to define much of the global economy. The ongoing war in Europe and China’s aggressive move away from its zero-Covid policy will have an uncertain impact on energy prices, supply chain efficiency, inflation and consumer demand.

In this environment, corporations are working to plan for the uncertain and the unthinkable. How should investor relations heads think about the coming year? How can they give guidance when they have limited to no visibility of the road ahead?

IR Magazine held a breakfast briefing in association with Balyasny Asset Management (BAM), the 20-year-old global multi-manager hedge fund with roughly $20 bn in assets under management.

The panel ‘Geopolitics and the economy: What energy and industrial companies need to know’, asked members of the investment community about the implications of current geopolitical challenges and their outlook for 2023. 

Geopolitical scenarios

Portfolio managers covering sectors greatly impacted by geopolitical events, such as industrials and commodities, gave their view on how best IR departments can navigate an uncertain environment.

The panel tackled topics such as supply-chain disruptions, commodity prices and the impact on companies in the industrial and energy sectors. By analyzing risks to investors’ portfolios, the session also offered advice to IR teams on how to provide guidance to investors in uncertain times.

‘It’s highly likely that macro uncertainty will continue into 2023,’ said Dan Deighton, BAM’s co-head of commodities. ‘The major macro drivers of 2022 – the war in Ukraine and China’s response to Covid-19 – remain both unpredictable and pervasive in their potential impacts on the global economy.’

While the road ahead may be difficult to see, the panel encouraged companies to remain open and candid.

‘Transparency is most important in times of uncertainty,’ said Chris Weltzer, an industrials portfolio manager at BAM. ‘Investors like to see that companies are undertaking real contingency planning.

‘While we can’t predict outcomes, presenting a range of possibilities and a clear grasp of the risks at hand can go a long way in building confidence.’

Similarly, while providing guidance may prove challenging, the panelists argued that investors would prefer some insight over none.

‘A lot of IR teams are tempted to pull pack, pull guidance and not give an outlook,’ Weltzer noted. ‘But if you’re aware of the range of risks, it’s helpful to make that clear. It makes it much easier for someone like me to invest in your company because I know that even if [something] happens, there’s a plan. Investors want to know that you’ve thought through contingencies and you have thought through options in case you need to adapt.’

Alpha opportunities in market upheaval 

While macro trends are focusing on potential tail risks, there can be opportunity in the uncertainty.

‘Some people tend to treat these geopolitical events as unforecastable or unknowable, [but] I don’t subscribe to that idea,’ said Karim Ansar, an industrials portfolio manager at BAM. ‘I think you have to treat them like stocks and understand what the drivers are.

‘Times like these demand dialog, information gathering and seeking out a diversity of views. We try to offer a wide range of views across different industries, asset classes and geographies. Our natural gas traders can talk to our industrial portfolio managers, giving us a fairly broad perspective. We think it’s smart to gather as many data points and opinions as possible.

‘It’s critical to plan, keep an open mind and always be flexible. For better or worse, there are a lot of black swans out there.’

Watch our interview with Chris Weltzer, industrials portfolio manager at BAM, on IR TV and listen via The Ticker podcast.