Russia, de-globalisation and 'strong men'

CIO view

Strong men again…

The sense remains that we are locked in dangerously interesting times. Much of this can be chalked up to old men operating without meaningful constraints - ‘Strong men’ and their aspirants have reappeared in autocracies and democracies alike this last decade or so. The stagnation that followed the great financial crisis proved fertile ground for their proffered decisiveness. There was even some tangential academic support - periods of autocracy are increasingly seen as central in the Asian development miracles of the post war period.

This of course plays to the vanity of many would be leaders - A man (usually) to make the future historians gasp. Geopolitical cunning allied to a bold strategic vision, usually involving a return to some imagined past nirvana. What’s not to like? The allure is obviously greater amidst stagnation and widespread economic challenges.?

The problems are many, as we are now re-discovering. However, the one that has often proved most vexing is how to move these guys on. This of course is what democracy tries to solve for. It does not invariably usher the right leaders into the right seats. However, it does often make it easier to retire them bloodlessly.

De-globalisation

A perhaps linked theme is de-globalisation. The return of industrial policy in the developed world could be seen as hastening globalisation’s retreat. Manufacturing hauled back home via subsidy to restore resilience to various important supply chains.[1] This retreat was apparently already in motion thanks in part to the return of nativist politics in much of the developed world this last decade or so.

We should obviously avoid over confidence here. Identified mega trends make for good marketing, but often miss vital nuance for investors. It could also be plain wrong. In his famous book on the subject, Robert Wright[2] wondered whether the increasingly global nature of the threats we face, from pandemics to wars to financial crisis, would continue to force more globally organised response mechanisms.

A human world that started off with hundreds of thousands of individual political authorities has already condensed to one with under 200 after all. This whittling has rarely happened in a straight line. Periods where the number has risen have been commonplace.

Some on the other hand have speculated as to how different treatment of personal data in different regions could be decisive in how the world order settles. In China, there is almost no such thing as personal data - The state is pervasive. Europe is somewhere at the other end of the spectrum, with personal data increasingly sacrosanct. The US is somewhere in between.

These paths are not easily switched from. They reflect sharp differences in the contract between governed and the governors in these regions. Maybe the world is forced into mega blocks, with gravity pulling the smaller states into the regional hegemons.

The point being that there are any number of ways that this could play out, with the incoming technological breakthroughs likely to have a shaping hand.

Investment conclusion

To the uninitiated this would appear to be a very unattractive long term entry point into investments. A world convulsed by disease, war, and dangerous old men, and talk of a recession ahead. Worse yet for investors, the major stock markets would seem to be giddily optimistic, succumbing to the hype around a still unproved new technology.

Tune out all of that. It is mostly irrelevant to your long-term returns. Most of the available information is accurately priced by the world’s capital markets. There are some opportunities here - our crack team of tactical investors are constantly looking to exploit on your behalf. However, the real opportunity lies in an ability to stay focused on the horizon. Your exit price from your sensibly diversified package of investments will be defined by how much the technological frontier moves between now and when you are looking to sell, hopefully in many years’ time.

To that extent, it is about getting invested as soon as possible and allowing the ingenuity of humankind as many hours, days, months, and years to work its magic. The fact that we now have another inventor in our midst in the form of Generative AI should give you all the optimism you need to take the plunge and stick with it.

[1] Andy Haldane – ‘The global industrial arms race is just what we need’- Financial Times – 26th June 2023

[2] https://en.wikipedia.org/wiki/Nonzero:_The_Logic_of_Human_Destiny

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