Threats all around

Market report

• Unchecked power and the nuclear threat
• Global capital markets remain unsettled as signs of impending economic downturn multiply

CIO view

I spent the guts of the week in our treasured new Glasgow campus, allowing my children brief respite from Printing press museums (last weekend). Clients are understandably nervous – Another long and difficult winter would seem to lie ahead. Incoming economic data are beginning to afford us glimpses of the coming global downturn, required to bring inflation to heel. Meanwhile, the rumbles of mutually assured (nuclear) destruction should again be reminding us of democracy’s appeal – the ability to peacefully transfer power and ultimately rid a country of bad leader should be more cherished than it is. Most leaders have a sell by date. A moment when they cease to be the positive force they imagine themselves to be. We simply cannot rely on the leaders themselves to recognise this moment and neither can we assume that others in various inner circles are incentivised any better.

If we are looking for factors that attract international investment, constitutional restraints on the executive are often underrated. Of all the range of threats and opportunities an investor weighs when thinking of a particular country, it is the whim of the unchecked and omnipotent individual that surely dominates. Leaders only recently envied for their geostrategic nous and domestic autonomy are now reminding us of the dangers of such omnipotence. Much of the developed world’s surge from the morass of millennia of economic stagnation is down to the discovery of democratic institutions.

Unchecked power is not a word that many will bandy around after party conference season in the UK. In many ways, Prime Minister Truss’s already era defining time in No.10 demonstrates the constraints on many developed world policymakers. An independent central bank mandated to focus on inflation, the need to borrow from international investors no longer starved for choice, alongside a parliamentary party to cajole – these are just some of the factors limiting the choices available to the new UK administration. Further softening of the jarring policy package is expected in coming weeks as the plans are subjected to the scrutiny of the fiscal watchdog, the OBR, and a now more sceptical market. The latitude previously afforded by markets to many previous Chancellors, with regards to various medium term fiscal fudges, may now be denied to this one. Rumours of a climb down on the corporate tax rate plans continue to swirl, as many continue to wonder where c.￡40bn of spending cuts could be found two years before facing an already seething electorate.

Although the night is not really darkest just before the dawn – of course it’s not – it does make for a neat aphorism. We are in a very difficult moment, both locally and globally. The world is again staring into the abyss of a (necessary) recession. War, famine, disease and dangerous old men still seemingly dominate. However, to glance at the headlines is to miss much of the progress beneath the surface. As with past information revolutions, much of the chatter focuses only on the ills rather than the potentially giant benefits. Yes, there is much time, energy and emotion wasted on spewing bile at each other globally. However, to focus on this alone misses a corrective trait our species often demonstrates. The above-described institutional checks and balances, central to the growth boom of the last few hundred years, were mostly conceived by strife.

The same goes for many of the innovative breakthroughs that have so supercharged our living standards over this longer time frame. For a contemporary example, look no further than the breath-taking advances in vaccine science that saved millions in the last few years alone, and will save millions more in those ahead. Similarly, the coalescing of various technological strands that facilitated so many to keep working productively (and safely), choices that previous technological paradigms would have denied our ancestors. More is to come. Those able to drag their eyeline above the raucous and terrifying headlines will note that diversified access to that future productivity potential is increasingly attractively priced. Get invested in a diversified batch of capital markets assets and try your hardest not to look too much. As a very wise colleague noted this week, the best day to plant a tree was 20 years ago, however for those without a time machine, that capital markets tree is best planted today.?

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