- The trade war between the US and China is the current big economic story and the greatest risk to the global economic outlook. It’s hurting both China and the US (where the latest round of tariffs will cost each household a yearly average of $831 – according to the Fed of NY), plus all those caught in the middle because of their supply chains or strategic alliances (like Pakistan for the latter or Singapore for the former). Earlier this month, the markets were assuming that a trade deal between China and the US was imminent. They were wrong: higher tariffs imposed on both sides shatter any illusion that a compromise can be found any time soon. The only certainty: relations between the incumbent and the rising power are entering a period of greater confrontation. From a market standpoint, the losers are China, the US and all those caught in the crossfire (global and tech companies in particular), and the winners are China’s export rivals (like Vietnam) + domestically focused companies.
- The trade war is merely the opening act in an on-going struggle between the US and China for global prominence. Rivalry for domination of the tech space is at its core. The Huawei case shows that the world is at the onset of a technological cold war, with a digital iron curtain descending between the US and China. In the immediate future, the US decision to blacklist the Chinese behemoth is turning into a nightmare not only for the company itself, but for the thousands of others enmeshed in its intricate supply chain (including 1,200 American suppliers to Huawei).
- What is the commonality between this month’s elections in India, the EU, the Philippines and even Australia? And between these elections and other recent ones like in Brazil and Israel? The (1) growing appeal of right-wing populism and (2) the all-pervasive nature and growing effectiveness of fake news and social media manipulation (more than half of internet traffic comes from bots). Almost everywhere, the “Populist Internationale” (as Steve Bannon calls it) and concomitant xenophobia are on the rise. The bottom line for global companies: “patriotic capitalism” and “ethno-nationalism” will entail a major shift in global supply chains, as well as greater retrenchment on the part of foreign investors.
- In Europe, the growing appeal of populism noted above does not mean that its progression is relentless and inevitable. In the EU parliamentary elections, the pro-Europe centre held its ground despite significant gains made by far-right parties, but these were less than expected (in France they even retreated winning 23.5% of the votes compared to 24.85% in the same election five years ago). Few anticipated the magnitude of the green vote that reflects a growing desire for forceful environmental policies. The bottom line: the markets continuously misjudge EU political risk and pundits’ predictions of EU’s disintegration are exaggerated. The EU’s appeal and continued resilience cannot be taken for granted, but nor can its demise.
- The defenestration of Theresa May by her fellow Tories will lead to either a second referendum or a general election. The UK faces yet more months of political infighting and turmoil, during which the issues that led to Brexit in the first place (like rising inequalities) will continue to go unaddressed. For the UK economy, the heightened uncertainty is like a slow puncture.
- The landmark UN report on biodiversity comes to the sobering conclusion that the decline in biodiversity is such that “it is eroding the foundations of our economies, livelihoods, food security, health and quality of life worldwide”. Demographics are a major culprit: we were 1.5bn a century ago, 6.1bn in 2000 and 7.2bn today, but what the report also makes clear is the tight interconnectedness between climate change and biodiversity loss. Two observations: (1) the ‘value’ of nature and the price we put on it will increase – the scarcer it is, the more valuable it becomes; (2) this will spur interest in any investment theme that has to do with conservation. Preserving and restoring nature is no longer ‘just’ a moral issue, but a question of the survival of our species as part of it and as such becomes an obligation.
- Ageing – the most potent and enduring global trend – lies behind much of what is going on in economics and our societies. With the notable exception of sub-Saharan Africa, longer lifespans and declining birth rates are now the norm almost everywhere. The implications are broad and all-encompassing, ranging from the future balance of power between the US and China to the redesign of the social contract that binds societies together. Taming ageing has become the ultimate status symbol, with the “young-old” (those between 60 and 75) becoming much healthier and productive than just a few years ago. They may well turn standard economics (ageing depresses growth) upside down. First, a rising number are keen to rework, finding in a professional activity a sense of purpose and a source of social connections. Second, these “mature” consumers expand new segments of economic activity in domains as varied as tourism (with cruises) or retail (for health products and premium brands).
- What does the share performance of Uber and Beyond Meat’s on their first day of trading (respectively -7% and +163%) tell us about tomorrow’s investment world? That necessity will ‘eat’ convenience. Over the next years, growing demand for meat substitutes and alternative proteins will dramatically accelerate, driven by mounting concerns about climate and sustainability. Companies like Beyond Meat, Impossible Foods or Quorn Foods are on the ascent because they provide a product perceived as necessary. By contrast, platform companies like Uber trade in convenience – a ‘nice-to-have’ but not a necessity.
- Over the past months, many reports from corporates (or think-tanks affiliated to them) have trumpeted about automation creating more jobs than it destroys. A recent paper from two independent academics should dispel any illusion that this is the case, and conversely sounds the alarm about the effect of automation on job creation, wages and productivity in the next few years. Exactly how the process pans out will largely depend on policy and the extent to which tech is left to its own devices. But the general direction is clear: to prevent social and political turmoil, governments will enact a massive process of wealth redistribution from the rich to the poor and from the old to the young (it’s been the opposite for decades).
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