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Goldman Sachs: Worried about North Korea and A.I.? Here's how to manage the risks

  • Investors are beginning to face a "real challenge" in the face of current geopolitical tensions, according to Sheila Patel of International Goldman Sachs Asset Management
  • But it's not possible to apply a general formula when controlling for uncertainty, Patel said
  • Pyongyang on Friday launched a second test missile over Japan

Investors are beginning to experience a "real challenge" in the face of current geopolitical tensions, largely due to North Korea's provocations, according to Sheila Patel, CEO of International Goldman Sachs Asset Management.

But while risk management is becoming a key talking point among wealth managers globally, it's not possible to just apply a general formula when controlling for uncertainty, Patel told CNBC following Pyongyang's missile launch over Japan on Friday.

"The real question is, what is your starting point asset allocation?" she said.

If investors were not in the equity markets early, "maybe being a bit behind isn't such a bad thing. And don't rush," Patel said, noting the U.S. market's strong and prolonged rally.

"For those who are fully allocated, the answer is probably to raise a bit of cash, or look at some hedges," she said.

American and Japanese flags in front of a monitor showing a news broadcast of North Korea's missile launch in Tokyo, Japan, on Sept. 15, 2015.
Tomohiro Ohsumi | Bloomberg | Getty Images
American and Japanese flags in front of a monitor showing a news broadcast of North Korea's missile launch in Tokyo, Japan, on Sept. 15, 2015.

According to the investment manager, Goldman Sachs' clients are "rating geopolitical risks much higher than they ever have in the past," and those tensions remain a "greatly destabilizing" force in an otherwise robust market.

Another source of risk lies in artificial intelligence's ability to disrupt markets, Patel said, adding that new industries — such as agriculture — are constantly being disrupted in ways investors have not been able to foresee.

A deep, "industry-by-industry" understanding of A.I.'s potential impacts remains critical to handling any uncertainty, Patel said.

The farming industry is expected to shift massively toward greater automation, including the use of self-driving tractors and robotic spraying and irrigation equipment. According to Goldman Sachs, farm technologies could grow to become a $240 billion market opportunity.