The world economic order will undergo further change in this coming decade. How can investors stay ahead, and what should they avoid? The Edge Singapore speaks to three veteran market analysts to find out.
SINGAPORE (Dec 27): This past decade, the US stock market defied almost all cautious predictions and enjoyed its biggest and longest bull run ever. Despite the run being described as a “tired old bull” from as early as three years ago, US equities, fuelled by cheap liquidity, have chalked up 11 years of growth — and counting.
Away from the equity markets, however, the world order on which companies and individuals have built their fortunes is under tremendous stress. No thanks to the populist policies of US President Donald Trump, protectionist sentiments have gained strength. Allies and partners have turned against each other. Norms of doing business for the past decades have been undermined. The very concept of globalisation is under threat.
“Multilateral institutions such as the World Trade Organization have been disrespected, trampled on. David Ricardo’s theory of competitive advantage is dead,” says veteran fund manager Wong Kok Hoi, founder and group chief investment officer of APS Asset Management.
The US-China trade war has dragged on for nearly two years. A lot has happened. For one, the global supply chain of electronics manufacturing is being reconfigured. New production capacity is being set up outside China, with Vietnam a key beneficiary. Malaysia is expected to enjoy some spillover effects too. Even if Trump is no longer in power, his successor might continue his popular measures.
Companies will not want to subject themselves to such political risks again, and therefore, the supply chain will continue its change, says Wong.
Kelvin Tay, regional chief investment officer of UBS Wealth Management, believes the most significant development in the last 10 years is the pronounced structural decline of Europe and the return of China to the world economic power. To be sure, these two trends started earlier on: Europeans never recovered from the debris of World War II, while China’s economic resurgence can be traced back four decades. However, it is the last decade that has really highlighted this turning point, he says.
The shifts are likely to continue. “China is a closed system, but they have open minds, they are very willing to learn from the rest, whereas the Europeans, to a certain extent, are the other way around: open systems, but closed minds,” says Tay.
So, as Europe slips further into irrelevance, and China’s strength and influence grows, the common view is that the world will become bipolar. Instead of the US versus USSR, the new world order will be the US versus China. “Each economic bloc includes its own currency settlement system, own trade rules, capital rules. Of course, all these are bad for the world; the world will be worse off,” says APS’ Wong.
Singapore is caught in the middle and, as with many smaller economies in Asean and Asia, needs to find a way to hedge itself or throw its lot behind one of the two bloc leaders. It can try to build a presence in new areas of growth such as data centre hosting and artificial intelligence. Wong is not too bullish on Singapore’s equities market in the coming years, though. “Look elsewhere,” he says, when asked which local Singapore stocks he favours.
Kelly Chia, executive director of research, Asia, at Julius Baer, sees the shaping of a bipolar world too. In 5G, or next-generation high-speed mobile networks, for example, two parties are vying to be market leader: China’s Huawei Technologies; and the Western camp consisting of Ericsson and Nokia. “That’s the de-globalisation threat you are going to see,” he says.
What should investors do? “Should you buy US or buy China? Buy both. There will be winners and leaders from both sides. You don’t need to choose either-or,” says Chia.
For UBS’s Tay, investors do not need to look too far for the winners in this coming decade: Indonesia. Having won a second term, President Joko Widodo has more clout to push through the reforms he has already put in place. The country, Asean’s largest economy, will start to reap the fruits of its investments in infrastructure. “By the end of the decade, if stability in government is preserved, Indonesia will be far, far stronger than what it is right now, and that is actually very positive for us,” Tay says.
