Goldman Sachs Group Inc. President Gary Cohn said prices in global markets don’t reflect the risks from geopolitical conflicts such as Russia’s annexation of Crimea.
“For the last six to 12 months, markets for some reason have been ignoring a lot of the geopolitical risk,” Cohn, 53, said in an interview with Canadian television network CBC. “Russia, Crimea, Ukraine: this is not the first or newest geopolitical risk we’ve had in the last year or so.”
Cohn cited tensions between China and Japan as well as continuing violence in the Middle East as risks that haven’t halted a climb in global equities over the last 12 months. Investors with a lot of cash have felt pressure to deploy it, preventing a sustained downturn in prices, he said.
“Anytime we get any sell-off in the market, there’s new investors coming into the market, so we haven’t seen that repricing,” Cohn said. Investors are saying, “I’ve got to put cash to work, and maybe these situations are going to be with us for a long time, and I can’t sit on cash at the bank earning no return forever,” he said.
Still, Cohn said the U.S. stock market seems fairly valued, given low interest rates and bond yields that will probably climb. The Standard & Poor’s 500 Index has risen 18 percent in the last 12 months.
“In a lot of respects, owning equities in the world today seems like the least risky opportunity for cash out there,” Cohn said. “Each of the alternatives has its own negative potential consequences to it, and then you evaluate all the alternatives in relationship to each other, and then you end up in a scenario where I think equities provide the most upside versus the downside.”