Pensions & Markets

A] Prelude

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B] The Issue

As geopolitical turmoil continues to shape markets, pension investors are being forced to adjust their portfolio playbook accordingly. David Kletz, lead portfolio manager at Forstrong Global Asset Management, warns that complacency remains a dangerous undercurrent across institutional portfolios.

He sees a disconnect between the scale of geopolitical turmoil and how markets are responding to it. And despite significant moves in asset prices, global equity markets have not priced in the possibility that current conflicts could escalate further

“I think there’s a lot of complacency, numbness, if you will, in this second Trump term to these types of risks,” he says. “And that’s definitely a danger to markets at present. I don’t think you want to take a geopolitical shock and necessarily lift the script on your investment approach and do something drastically different but you do need to be cognizant of the risks and potential ways to hedge around them and to build a more robust portfolio that can withstand some of these growing risks.”

C] The Details

Kletz notably sees energy as the dominant question for investors right now but also draws a distinction between the immediate impact and the risks that could follow. The immediate is rising oil prices across the broader energy complex, while the bigger concern is what happens if those prices stay high for long enough to push inflation up while slowing global growth, creating a stagflation risk that would leave central banks in a bind. Even so, he suggests that remains more of a rising tail risk than the main portfolio call right now.

While he views stagflation as a growing risk, he underscored it’s not yet one that should drive portfolio construction.

D] Energy Aspects

On the energy opportunity itself, he breaks it into categories.

1. The first is net energy exporters whose supply routes are not running through conflict zones, pointing to countries like Canada, the US, and Norway. While Middle Eastern producers may be flush with oil, he acknowledged their trade routes and physical infrastructure face direct geopolitical threats. It also helps explain the pressure on markets such as Japan and South Korea, both of which import large amounts of oil and have meaningful exposure to the region.

2. The second category is oil-importing nations that have built diversified energy grids. China stands out here, having invested heavily in solar and wind to reduce its reliance on crude, a move that also positions it well as power demand from AI and data centres continues to climb. That said, China still imports significant volumes from geopolitically exposed regions, which limits the argument in the near term.

E] Stress Testing

While Kletz admits he doesn’t have hard data on where pension capital is flowing, he acknowledged institutional investors are now stress-testing country exposure through a simple energy lens. Notably, they’re looking at which markets are net exporters or net importers, how dependent they are on oil, and how much of that supply comes from the Middle East.
Meanwhile, Latin America, he suggests, looks somewhat less vulnerable by comparison because even where countries are importers, they generally have lower reliance on Middle Eastern supply.

On China, Kletz suggests the conversation is becoming less binary than it was a few years ago. Canadian pensions, he noted, had previously built meaningful exposure to Asia, including China, before the narrative swung hard toward the idea that Chinese assets were effectively off-limits. That shift made China politically difficult to own and weighed on the case for allocating capital there.

Yet he sees some signs that the backdrop is softening, noting that improving ties between Canada and China could open the door to a more measured discussion among Canadian investors, while recent US actions on trade and foreign policy may have marginally improved China’s standing in relative geopolitical terms.

F] Growth

But he stops well short of saying China has become a clear destination for new capital as he believes the bigger obstacle is growth. China has stabilized somewhat after its property downturn, and its export machine remains strong in areas such as electric vehicles and industrial goods, but domestic demand is still weak and stimulus has not been forceful enough to change the picture.

Finally Kletz underscored how capital doesn’t move on geopolitics alone; it follows the strongest growth stories. Until China can offer a broader and more convincing growth outlook, he suggests it will be hard to justify materially higher allocations, even if sentiment toward the market is becoming less negative.