Even TV commentators sense that the current election in Britain is a phony war, with neither party knowing how best to connect with the electorate. As the FT put it when describing the recent local elections: “These results show that the old divide of left versus right no longer explains how British voters think. Instead, globalist versus anti-globalist sentiment occupies voters’ minds, encapsulated by Brexit.”
The French example
This is even truer of the French presidential election, with far-right candidate Marine Le Pen claiming that France is now divided between patriots and globalists. Fortunately for the European Union – and indeed for Britain – the decisive winner of this contest was the relatively unknown Emmanuel Macron. A believer in the EU, free trade and enlightenment values, Macron’s election as France’s youngest-ever president is as remarkable as that of Donald Trump in the US.
Yet both these presidents are discovering the truth of what Florentine writer Niccolò Machiavelli said some 500 years ago: “There is nothing more difficult to take in hand, more perilous to conduct, or more uncertain in its success, than to take the lead in the introduction of a new order of things.”
Trump, as president, has yet to acknowledge this. Rather than installing his political supporters throughout the administration, he has sought to rule a modern continental-sized country as a medieval king through his family and friends. And Macron now has to convert his year-old movement into a political party that can gain a majority in the National Assembly, force through internal reforms that have defeated socialist and conservative leaders over the last 50 years, and at the same time persuade the Germans of necessary reforms to the eurozone.
If he fails, then the 2022 election may well see France under the governance of a National Front leader.
Difficulty of change
The problem of change – as Machiavelli well knew – is that those who might benefit are, at best, half-hearted in their support, while those who will suffer are implacable in their opposition. This is not a problem only of politicians and administrators – it is true of all of us.
More than a century ago, the world was in upheaval as machines began to replace hand and horse labour and, later still, as gas and electricity brought light and heat to our homes.
Hundreds of thousands lost their jobs then, and it took some years before labour markets adjusted to those challenges. Today even greater threats face the world as we know it, for AI [machines and devices based on artificial intelligence] is beginning to replace most, if not all, professional activities.
That first revolution increased human health and happiness over time, and this new one will do the same. But between now and then, great challenges will again face society in terms of redistribution of capital and income, and of education for a world of greater leisure [or far fewer jobs and poorer earnings].
Challenges of today
Few of us are even thinking of these questions in the all too human belief that ignoring them will make them go away. Investors cannot afford that attitude. Companies, like humans, grow old, become complacent and die. And so do markets and countries.
Once, not so long ago in terms of human history, the biggest and most valuable trading space in the world was that based around the Indian and Pacific oceans. Then from about 1600 AD European ships, with iron cannon, entered that market and converted it from Asian to European interest.
Today, the reverse is happening. More patents are coming from Asia than from the Atlantic world. Asia is now the world’s manufacturing centre – something inconceivable less than 50 years ago – and those Pacific trade routes are buzzing again, but now with intra-Asian trade.
Although president Trump pulled the US out of the proposed Trans Pacific Trade Partnership, it is significant that the other partners are trying to recreate it for themselves without annoying the US too much or threatening their existing defence arrangements.
Table 1 shows the 10 most successful Asian investment trusts over the last 10 years, all excluding Japan, and Witan Pacific, which invest throughout the region, including Japan and Australasia.
Although most of these trusts are confined by their investment parameters, the exclusion of Japan over recent years was, in any case, understandable from an investment manager’s perspective.
After the bust in 1990, Japan entered a long-term period of deflation, much worse than that seen in the West after 2007-08. This is only now beginning to ease as the result of ‘Abenomics’.
Investing in new markets
However, Japan remains the world’s third largest economy and, as always, a key partner for China. Suffering from a rapidly aging population, its imaginative and smaller companies are specialists in robotics.
Australasia, on the contrary, is the region’s mineral and agricultural resource; an equally important source of long-term value. Therefore Witan Pacific is probably a safer choice, even though some of the excitement of the more tightly focused trusts will be foregone.
Table 1 shows the value of a lump sum investment over the past three, five and 10 years, yields as of the end of April, and the current premium or discount of the market price to net asset value.
Performance differs among these trusts, with much depending on which particular markets managers favour, so reading board and investment managers’ reports are important.
This research will give a full understanding of strategy and tactics, the countries and markets considered important over the long term, preferences for large or small companies, and success over the years.
Nevertheless, market attitudes towards Asia of western investors will remain important, for there is great uncertainty over what is happening within the Chinese economy. With the current leadership in charge, this will not change soon.
But investors should take comfort from Churchill’s comment in 1939, remarking on another large and secretive state: “It is a riddle wrapped in a mystery inside an enigma, but perhaps there is a key. That key is Russian national interest.”
The same is true of China, for the Party is determined to do away with the humiliations of the 19 century by making China one of the world’s greatest powers again.
