Beset by variants and surging infection rates the global recovery hangs in the balance.  Public debt is on the rise and how to solve it is up in air. The acceleration of global warming is taking even the scientists by surprise. Those doing business with or in China today must expect the unexpected. The nature of future consumption may be inconspicuous and wellness will be key.
  • With the delta variant, uncertainty is all pervasive, and the concomitant resurgence of cases around the world could derail the global recovery. High-frequency data paints a blurred picture, but risks to growth have shifted to the downside because of a pullback in services spending. To a large extent, vaccination rates drive national recoveries, thus widening the gap between advanced economies and emerging markets. Expect the global recovery to be lopsided.
  • Since the onset of the pandemic, governments around the world have disbursed USD16tr on fiscal support while central banks have expanded their balance sheets by an aggregate of USD7.5tr. As a result, global government debt now exceeds global GDP, but the former cannot expand indefinitely without causing major problems, so the question is what happens next? Much higher levels of public indebtedness than in the past are now being tolerated with markets unconcerned, but in the end, debt can only be dealt with via (1) higher growth, (2) higher inflation or (3) default. Higher growth spurred by higher productivity is possible but still a big ‘if’ (for reasons addressed in past barometers). Should it fail to materialize, it will be inflation or default, or both, that eat away public debt. Debt monetisation, an emergency option, can only go so far.
  • This year, climate catastrophes are here for all to see. Dramatic floods in China’s Henan province, parts of Europe and India and in Uganda; unbearably high temperatures in many parts of the world, including North Africa and Turkey; ‘unimaginable’ wildfires in the West of the US, Canada, and Siberia. The list goes on. In 2004, insurance companies involved in the WEF Global Risk Network warned back then that such extreme weather events would become the norm. Even so, what’s happening today is taking scientists by surprise. One, speaking for many, confided that he’s shocked by the severity and frequency of these events that take most existing models “off scale”. Not only will the goal set in Paris six years ago to keep the rise below 2C be missed, but also the dismal possibility of a 3C rise in the coming decades is looking more and more like a reality. This matters so much because global warming has non-linear effects: 1C is bad but manageable, 2C is very bad but adaptation can mitigate the pain, 3C will be simply untenable for many people and species.
  • The climate crisis is so acute and unfolding at such a fast pace that transitioning to net 0 is now both a global policy and business imperative. There’ll be a surge in capital investment, but the fact that de-carbonization opportunities are bigger and coming sooner than expected won’t make them any First, de-carbonization policies are under severe pressure to be fair and politically implementable (at least in democratic countries). – a major difficulty (think the “Gilets jaunes” protests back in 2018). Second, the path to clean energy will be treacherous. One example: the major challenge a sextupled quantity of minerals needed to reach net 0. Investors must therefore prepare for a world both awash with opportunity, but also much more chaotic, with multiple social and geopolitical pitfalls along the way.
  • The profound and growing chasm between the US and China means that any company doing business in or with China, and vice versa, can suddenly get embroiled in a geopolitical / regulatory quagmire, with potentially fatal consequences. The recent case of Chinese education stocks trading on US exchanges crystallizes the point. New Chinese regulation triggered a collapse in the share value of prominent companies like TAL education (which lost more than 70% in one go), stripping them of their growth potential and even challenging their very existence. The process of financial decoupling – now in full swing –is at odds with all those Western global companies and financial institutions that remain upbeat about China’s potential. They too could fall victim to random political measures taken by either the Chinese or the US government.
  • Part of the reason why China is cracking down on tech and data platforms (like education and tutoring companies) stems from a political decision (1) to reassert control over the private sector, but also (2) to curb rising inequality and private indebtedness. Since the crackdown started, the market cap of Chinese tech has plunged by more than USD1tr (a third), and the fact that the Party has brought Chinese entrepreneurs to heel is likely to call into question the conventional wisdom that authoritarianism and economic dynamism are not exclusive from each other. The reality is: economic efficiency and political omnipotence make bad bedfellows. This risks costing China a lot of dynamism and growth in the years to come.
  • The joint forces of the pandemic and the climate crisis have accelerated a trend already brewing below the surface for some years: the rise of inconspicuous consumption. Nowadays, conspicuous consumption (i.e., buying expensive stuff for signalling) is often seen as vulgar, at least in the Western world, and being increasingly replaced by new forms of consumption reflecting different social priorities. For affluent consumers, it’s no longer a question of material accumulation, but rather about embracing new markers of distinction, like buying into wellness and ‘purpose’. These mainly take place in services (the ‘non-tradable’ sector) where it’s harder to improve productivity. In this particular case, less growth would be a sign of social progress.
  • As we had predicted in COVID-19: The Great Reset, wellness is one of the great ‘winners’ of the pandemic. If wellness was big before COVID, it’s even bigger now: our priorities have shifted (bullet point above) and we increasingly value physical and mental wellbeing because of their relative scarcity. Today, the global wellness market is estimated at anything in-between USD1.5 tr to 4.5tr., growing at 5-10% per year. Wellness is becoming a prominent investment theme but is hard to define – it’s neither an industry nor an asset class and it comes under many different guises, most notably: (1) appearance (beauty), (2) fitness, (3) health, (4) nutrition, (5) mindfulness, (6) outdoors and (7) sleep. All are gaining a lot of traction, both in the digital and in the ‘real’ worlds.
  • For an in-depth analysis of any of the bullet points and what they mean for you – please contact us.