We live in an era when politics keeps crashing into the world of economics.
Good economic news contrasts starkly with the grim drumbeat of war in the Middle East and eastern Europe.
Yet for a while, it appeared that markets were taking all of this in their strides, at least partly because even the crisis-hit areas made up a relatively small percentage of global GDP.
Though in the case of Russia, Europe relies heavily on its energy supplies, so markets are finally starting to be affected.
It does perhaps beg a question: Do fund managers and asset allocators really have the political nous to manage for this sort of situation?
It is, for example, almost regarded as a matter of historical determinism that China will liberalise its currency.Whether we really have to worry about a new cold war is one thing. But we may also have new political/trading blocs that could present different investing challenges. It is, for example, almost regarded as a matter of historical determinism that China will liberalise its currency, its financial services, and introduce much firmer, stronger corporate law and shift to a consumer culture.
It certainly wouldn’t be wise to bet against most of these developments, but it is also possible that such reforms could also have their limits if they undermine the Communist Party.
More widely, the Brics bank is yet another fascinating development that could free those countries and others from potential reliance on the long-standing Bretton Woods institutions.
Nothing here necessarily changes the fundamentals of portfolio planning and diversification. It does perhaps add an interesting dimension to strategic asset allocation, certainly for those investors who favour a bigger portion of emerging markets in their portfolios.
It also feels that much of the political and economic landscape is being drawn by individuals. Take Vladimir Putin’s political manoeuvres regarding Ukraine. We won’t be back with the USSR any time soon – the relationships are too complicated – but a huge trade deal with Russia and China eventually promises a fascinating reorientation across Eurasia no matter what bloc Ukraine is in.
A new global and economic configuration could leave the US, Japan and a relatively sclerotic EU as merely one vision of economics and politics for the globe.
These developments are obviously incredibly difficult to analyse and predict. But there are implications for energy costs or banks falling foul of sanctions in a global financial system.
Additionally, for listed stocks in many emerging giant economies, how far does the embrace of western economics go? Will an Indonesian blue chip behave differently from a Chinese one?
I couldn’t begin to suggest how all this might influence investing or certainly not in strategic terms.
But maybe it is worth asking your fund manager or asset allocator. And with a few notable exceptions – try Mark Tinker at Axa Investment Managers or Tom Becket at Psigma – I haven’t seen a great deal of understanding demonstrated of a changing globe as yet.
Maybe some fund managers need to bury their heads in some – recently published – textbooks.
John Lappin blogs on industry issues at www.themoneydebate.co.uk
