Davos: What just happened?
Certainly much is going to be written about the geopolitical shift that is under way as characterised by Xi’s speech. Whenever there is a change in the global leadership order, it becomes a very dangerous period for geopolitics and markets.
But beyond the speeches and interviews lie myriad reports that NGOs, consultancies and other corporates release around the World Economic Forum (WEF).
The trends seen in these reports are not good. Most importantly, they point to rising inequality and a decrease in trust. And with a theme this year of Responsible and Responsive Leadership, it becomes all the more important that the collective global leadership responds.
They must respond quickly if we ever wish to see the most damaging trends being halted and reversed, otherwise it will all just be a matter of too little, too late.
The solutions ranged from the familiar, such as re-skilling people to fit the new future, to tax reform and changes to the monetary regimes, and even embodied some radical ideas, such as the concept of a universal basic income.
From an investing perspective, the key takeaways from Davos 2017 have to be the various inflection points we find ourselves at on the technological innovations referred to by the WEF as the Fourth Industrial Revolution. In particular:
1.The insights on artificial intelligence from Ginni Rommety (IBM chief executive) and Sergei Brin (Google co-founder) indicate there are profound new developments in this space that will affect all businesses - not just those we perceive as “tech” companies. How the companies we invest in respond to artificial intelligence over the next few years will be critical to their longevity and our equity and fixed income returns.
2.Renewable energy too, particularly solar PV and wind, is at a global tipping point where these sources of energy now cost less than coal in 30 countries. This is based on detailed research done by the WEF. This research is particularly relevant to the energy debate heatedly being pursued in South Africa and affirms the raionale behind Ashburton’s renewable energy CPI-linked debt fund.
3.Carlos Ghosn (Nissan and Renault chief executive) explained how driverless car technology is fully available and just needs a few years to be properly reailised. Given the impact of cars on all aspects of our economy, we can expect serious disruption and opportunity here.
4.The future of financial services is the subject of ongoing WEF research and was the topic of several panel discussions. The clear trend of regulation making certain activities less appealing for banks (for example long-term lending) and providing opportunities for alternative providers has moved from theory to practice.
5.A critical consequence of the Fourth Industrial rrevolution is that the chances of living much longer than one would have expected in the past have significantly increased. Longer life expectancies and lower investment returns given the epochal lows in global interest rates are probably the main investing challenge of the Fourth Industrial Revolution.
From an economic perspective, there was more optimism on the growth and risk scenarios for emerging markets than one would have expected. For South African investors this must provide some comfort.
On a political front, extensive debates at Davos ranged around global political challenges. This included the new regime in the US, the advent of serious Brexit negotiations, increasing assertiveness from China and the realisation that the inequality chickens are coming home to roost.
Africa will be fully in the WEF’s lens later this year when it has its own focused meeting in Durban (WEF Africa). However, the annual global meeting that ended last week in Davos resonated strongly with African followers and investors. The theme of Responsive and Responsible Leadership is thankfully something we are seeing more of in Africa.
The Africa-specific focus meetings at Davos have been on power and ensuring future growth. Here public private partnerships will be key and a good driver of future infrastructure spend and growth.
The concerns raised at Davos around protectionism will hopefully not affect Africa too much because the US is unlikely to change its trade agreements with Africa.
We also believe that the increased leadership role that China is expected to play in the world economy will mean greater inclusion in global trade and foreign direct investment for the continent.
Paolo Senatore is the chief investment officer at Ashburton Investments.