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Geopolitics & Its Global Economic Impacts

[2023 Trends and the impact on the global economy. How might this affect you with regard to your finances]



2022 will be seen by most of us as a very negative year for many reasons:


Most investors saw their wealth go backwards as global markets saw significant falls leading to the values of pensions and investments falling significantly.


Inflation reared its ugly head leading us all to feel poorer due to the rising cost of most basic necessities.


Interest rates went up as a result leading those of us with debt to pay higher interest rates to services mortgage, credit card and other debt.


What were the factors that caused the above issues in 2022 and will things improve in 2023?


Firstly, the war in Europe was a major catalyst for much of the bad news as this had a huge impact on the cost of fuel, food and energy prices. The outbreak of the war saw unprecedented spikes in fuel, energy and food costs particularly in Europe and Africa. The impact of the war is however global and countries which are heavily reliant on energy and food imports will be the worst affected.


Even before the war, inflation was beginning to bite due to a number of factors like Covid and the ‘revenge spending’ in many countries. The breakdown of the ‘global supply chain’ particularly while China maintained its strict covid control policies. The breakdown of the global supply chain due to nationalism and geopolitics is now an important new long-term trend which will lead to more volatility and higher global inflation.


For the majority of us it will be difficult to keep up with the change happening in the world and how this affects our finances and the investments we hold.


Active and Passive Investors:


Many of us think that just because we hold a managed fund or similar that we don’t need to monitor or review our investments. In fact, this is not the case as not all managed funds are equal, and performance can differ massively. As an individual investor it is difficult to track this unless you have the time and energy.


In the past ‘passive investors’ who bought a market index like the top US Index [S&P500] did well as in a low inflation environment almost all sectors of the market did well. As we enter a new period of higher inflation and global instability this will not be the case and certain sectors will do much better than others for Investors.


Key Themes:


To help investors we have identified 4 key ‘mega trends’ which will impact our future and the investments we make.


Shifting Demographics:


This is all about changes in population and movement of people. For example, the population growth in China is slowing down while it is still exploding in India. Many countries like Europe and Japan face the reality of a declining population and as a result slower growth in their economies.


For an investor this means that companies that focus on these growing markets will be more likely to do better than others in more mature slower growing markets.


Changing World Order:


The breakdown in the relationship between the US and China is forcing countries to choose sides. This breakdown will lead to more expensive goods and food plus the building of new supply chains. In the US it is clear to see a pickup in economic activity in Mexico as the US tries to rely less on China.

Production will also shift to new countries like Vietnam and India.


The bumpy path to net zero: [Sustainability]


This is a major trend which will provide opportunities for a decade or more as the world transitions away from the use of fossil fuels and unsustainable policies.


Technological Revolution:


Covid forced us all to accelerate the technological revolution due to working at home, online payments and government needs to streamline processes. This trend will not reverse, and technology and innovation will help us all adapt to our changing world.



Summary:


In a rapidly changing and complex world it will be difficult for the average or even experienced investor to keep up with the changes the world is going through.


This means it is vital for Investors to work with an experienced wealth manager or financial advisor to make sure their investments are best placed to benefit from the new trends.


Active fund management will be key to making sure you don’t get left behind. Speak to us about working with a ‘wealth manager’ to make sure your investments are well placed to grow.




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