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Are markets becoming immune to disruptive geopolitics?
There’s no escaping the intricate link between economics and geopolitics. Today, that link has become a crucial factor in investment decision-making, and who better to speak to that than Margaret Franklin, CEO of CFA Institute, a global organization of investment professionals? Franklin sat down with GZERO’s Tony Maciulis at a Global Stage event for the IMF-World Bank spring meetings this week.
Economists once predicted that sovereign debt would overwhelm global markets. But now, having been through the pandemic, the advent of AI, and wars in the Middle East and Ukraine, “there's almost a level of immunity,” she says, “to the dramatic nature of it until something really cataclysmic happens.”
And then? “The response, generally speaking, has been pretty positive,” Franklin says, with central bank intervention saving markets and building resilience.
In much the same way, the World Bank is trying to boost investor confidence by making changes that leverage private sector capital for public sector goals by better evaluating what level of risk the private sector will accept.
Individual investors should do the same, Franklin advises. “Really evaluate your risk profile … making sure you diversify,” she says, noting that fixed-income offerings have become more attractive. Younger investors, meanwhile, need to be cautious with getting their information on social media, she adds.
For more of our 2024 IMF/World Bank Spring Meetings coverage, visit Global Stage.
Global investment manager and business executive Mark Wiseman, seen here in 2017.
Mark Wiseman on smart choices today vs. eating gruel tomorrow
As business and world leaders converged on Davos this week, we learned that the WEF’s Chief Economists Outlook saw more than half of chief economists predicting the global economy will weaken this year. What does today's global uncertainty mean for business leaders? For your retirement plan? GZERO caught up with Mark Wiseman, a global investment manager, business executive, and expert in private equity, alternative investments, long-term investments, and sustainability, at Davos for some answers. Wiseman is also a senior advisor with Boston Consulting Group and sits on the Board of NOVA Chemicals.
This Q&A has been edited for length and clarity.
GZERO: Often the criticism of Davos is that it's a gathering of the wealthy and powerful that produces few results. What's your sense? Is this year different?
Mark Wiseman: Everything's changed in the last 1,000 days.
Think where we were 1,000 days ago. We were still in the pandemic, trying to understand what that meant for the world and society. China and the US were only in the early innings of decoupling. There wasn't a major kinetic war taking place on the European continent. It looked like peace in the Middle East was closer than ever.
Today, it looks closer to a complete breakdown of society and all-out war.
In the shadow of the last 1,000 days, this particular Davos, which is the first real one post-COVID, geopolitics are incredibly important, but the geopolitical players, by and large, are not here like they used to be.
Davos has become a business forum. Businesses are worried about politics. Businesses are worried about the US election. Businesses are worried about commodity prices. Businesses are worried about China.
But the politicians are not here in the numbers they've ever been in the past.
There's something wrong. We've got this massive geopolitical overhang and it's a lot of business people talking to each other about geopolitics, whereas the actual participants aren't by and large in the room.
GZERO: What do you attribute that to?
Wiseman: More than a little bit of it is the liberal elite rap that Davos has received. Today, if Trudeau were to show up at Davos, it would be a front-page story about him being part of the elite in the Swiss Mountains, and he can't afford that press.
But it's too bad, given how important dialogue about geopolitics is between corporate leaders and political leaders right now.
“Building trust takes years while losing trust takes a moment.”
GZERO: The overarching theme of Davos this year is rebuilding trust. An AP poll last year found 88% of Americans said they had little or no trust in banks and financial institutions. What are your views about how to repair that public relationship?
Wiseman: Building trust takes years while losing trust takes a moment. I think that we've had lots of moments and we haven't had enough years, consistently, to rebuild trust in financial institutions. And part of that is the underlying profit motive that seems to drive everything in many of our financial institutions.
Obviously, there is an issue of trust in terms of the public writ large having to step up time and again to bail out financial institutions that have taken unwarranted risks. It's not just a US phenomenon. It's Credit Suisse here in Switzerland. It's some of the property players in China. Both banks and regulators need to do a better job in also understanding the role of financial institutions in society – in terms of providing capital for economic growth and the benefit of everyone.
And because we've had so many moments of mistrust, the pendulum has swung also among regulators in terms of de-risking the system.
And so the regulators, because of a not-unwarranted response from the public, are essentially solving for a single variable, which is systemic risk. We're going to avoid systemic risk because God knows we don't want to have to bail out another bank.
And in reality, yes, you wanna control systemic risk, but you also want to assure capital formation and you want to ensure access to savings products and insurance products that are fairly priced for individuals so that they can mutualize risk.
GZERO: There are a lot of folks in developed countries who are in their 30s, they've been working for a decade and are finding they have to make hard trade-offs now financially. What do you see as the outlook for people that are, let's be frank, approaching middle age and are not in the same position as earlier generations when it comes to building wealth?
Wiseman: The baby boomers have just benefited immensely from the disproportionate post-war growth and bull market. But that's an outlier. If you were in the 1940s, you would have had the same issues about buying a house and if you were in the 30s, you'd be worried about feeding yourself for most people in society.
I do think the one major change though is retirement. You will in all likelihood live significantly longer than your parents lived. Your children will live significantly longer than you live. That means that you and your children will in all likelihood have to rely on your retirement savings for a longer period.
And Social Security is … like a woolly mammoth in the room. One that American politicians are not addressing and it's coming very, very quickly, and the fact is, unless you're looking after yourself, there's not going to be enough there for you.
“ … the choice you made today was actually a choice as to whether you wanted a nice private retirement home with your own nurse or living in a government facility, eating gruel.”
GZERO: What should governments be doing to avoid a situation in which the younger generations are supporting older generations in an unsustainable fashion?
Wiseman: China is actually interesting, very similar to the US because you've got the national Social Security Fund, which essentially is underfunded and has some of the same issues as US Social Security.
The only reason why China is arguably better off is because it's got a high savings rate. People don't have 23 credit card companies dropping new cards in your mailbox every day.
Americans don't save, they consume, which has been driving the economy. I used to do this little speech, and I'd hold up a cell phone. Often it was a bunch of people coming to work for the firm. They’d be maybe 20 years old, and I'd ask “How often do you change your cell phone?” and they would say “every year” or “every 18 months.”
I said, “Boy, that's a pretty big cost, it's $600 or $700. What if you changed your phone every 2 1/2 years instead of every year?” And by the way, I've got one that still has a little push button on the bottom; I do take my own advice.
If that's 700 bucks that you save instead and then compound that out, you can think about the choice you made today as actually a choice as to whether you wanted a nice private retirement home with your own nurse or living in a government facility, eating gruel. That was the decision you made when you bought your phone. That's a huge decision, but no one thinks that way.
For more from Mark Wiseman, check out his article about the fundamentals of investing: risk and return.
China issues new rules to review foreign investment on national security grounds
SHANGHAI (REUTERS) - China has drawn up new rules that will allow authorities to review foreign investment on national security grounds, the country's state planning agency said on Saturday (Dec 19).
China says US should stop unreasonably suppressing Chinese firms
China's foreign ministry made similar comments last week.
Indonesia closer to setting up first sovereign wealth fund
Regulations on the establishment of Indonesia's first sovereign wealth fund (SWF) will be ready in two to three weeks, and discussions on possible joint investment with foreign SWFs in Indonesian projects have been held with the Abu Dhabi Investment Authority, Singapore's GIC, and the US International Development Finance Corporation (DFC).
Malaysia Airlines boss says will have to shut down if restructuring plan fails: Report
KUALA LUMPUR (REUTERS) - Malaysia Airlines will have to shut down if its lessors decide not to back its latest restructuring plan, the airlines' group chief executive was quoted as saying on Saturday (Oct 10).
Indonesia passes contentious job creation Bill amid strike threat
Indonesia's Parliament yesterday passed into law a job creation Bill that is aimed at spurring investment but has drawn flak from unions which have threatened to strike.
Indonesia's Parliament passes contentious job creation Bill amid strike threat by unions
JAKARTA - Indonesia's Parliament on Monday (Oct 5) passed into law a job creation Bill that is aimed at spurring investment, but has drawn flak from unions which have threatened to strike.