A fascinating week across a range of largely political rather than investment issues. But the political back-drop continues to cast a big light on the investment outlook. Here’s a ramble around the last week with the help of some talented writers and thinkers.
Starting at the end, today will see the earth-shattering result from the Lewisham East by-election. Revolutionary ideas provoked heated debate on the stump. For example, to avoid the problem of identity theft, why not just call everyone Chris? That from the Official Monster Raving Loony Party, who like to help politicians not take themselves too seriously.
Which leads seamlessly to Donald Trump, who, to my knowledge, has never been to Lewisham East or West, but does take himself very seriously. This worries the PALTUDS (People with At Least Two University Degrees). As Niall Ferguson put it last weekend, they have been “gnashing their teeth about Trump’s every utterance and move”. Yet a striking feature of their doom-laden analysis is how wrong they have been so far about Emperor Donald, as Niall calls him.
Trump is undermining the world order! Who said so? The senior EU official Donald Tusk – unelected official of course. They don’t get it. The voters of the ageing and indebted Western economies are grumpy, if not increasingly angry. That is why there is President Trump. That is why there is Brexit. That is why the Italians are revolting… Spain is at risk of disintegrating… the far-right AfD are the biggest parliamentary German opposition group… In Eastern Europe, some are turning back towards a resurgent Russia, others are increasingly nationalistic. The Hungarian Prime Minister now promotes “illiberal democracy”, and the country has closed its borders.
The other Donald (Tusk) needs to look much closer to home for the source of the “world order” problem - the cosy political elite and "the 1%". The former in particular have desperately needed to get out more, and they have forgotten how terribly inconvenient democracy can be when you become complacent and self-serving.
Moving further East, the summit on Korea was remarkable just because it took place. It lacked some detail of course – I did wonder if they each just signed blank bits of paper to be filled in later – but it was positive (ignoring the carping from PALTUDS). As one significant Asian fund manager put it, just the symbolism was very important.
Firstly there is now a commitment to discussion, where just a few months ago the risk of conflict was very elevated.
Secondly China will be a key player in the denuclearisation process. Drawing the US and China closer also reduces the ideas of trade war sabre rattling getting out of hand.
Staying in the East, while the G7 was very publicly squabbling, you might have missed the SCO meeting in Qingdao, China. This highlights the huge investment opportunities in decades to come. I will now give the floor to another global fund group with a big footprint in Asia:
Qingdao vs Quebec – which matters more?
The meeting of the G7 in Quebec last week may be remembered more for a single image – a group of stern figures surrounding Angela Merkel as she looked down on a pouting Donald Trump – than for any progress on the global issues that the summit was seeking to address. Trump turned up for less than 24 hours and left with a volley of insults towards Justin Trudeau, the host premier. There is a sense, though, that world leaders are developing a harder and more unified line when it comes to dealing with Trump, with Emmanuel Macron condemning the president’s “fits of anger and throwaway remarks.” Merkel called Trump’s refusal to sign the communiqué summarising the meeting’s conclusions "sobering" and "depressing."
As the G7 ended, with Trump jetting off for his historic meeting with Kim Jong-Un, another conference opened in Qingdao, China. While the G7 was mired in back-biting and squabbles about protectionism, the meeting of the Shanghai Cooperation Organisation (SCO), which brings together the leaders of China, India, Pakistan and Russia as well as representatives from a host of other Central Asian countries including Kazakhstan and Iran, took place against a far more optimistic backdrop, with the tone strikingly open, global and inclusive.
President Xi of China gave a speech that was clearly directed towards Washington, noting that "unilateralism, trade protectionism and a backlash against globalisation are taking new forms.” He urged the leaders present to “reject the Cold War mentality and confrontation between blocs, and oppose the practice of seeking absolute security of oneself at the expense of others, so as to obtain security of all.” The meeting saw renewed evidence of the increasing closeness between China and India as Xi and Narendra Modi issued a statement rejecting the “new wave of protectionism” and calling for an “open and inclusive world economy.”
As the following charts demonstrate, the Asia Pacific region already represents a larger share of global GDP than either the US or Europe, with this dominance expected to continue. Similarly, we can see that China is expected to overtake the US as the world’s largest economy 11 years from now. It may well be that decisions taken in Qingdao will leave a far greater mark on the future shape of the global economy than the legacy of a bad-tempered G7 summit that merely served to accentuate the political differences of the major Western nations.
FURTHER READING
Chart 1. Asia-Pacific Leads Global GDP
Chart 2. China GDP Set to Overtake US in 11 Years