investment viewpoints

CIO view: a stark new decade

May 22, 2020

Christophe Khaw

Chief Investment Officer, 1798 Platform

Florian Lauwers

Investment Strategist 1798 Platform

The last decade was about low volatility and the triumph of passive investments.

Welcome to a very different decade.

The COVID-19 pandemic will likely act as an accelerator of trends born in the prior decade. These trends include the digitalisation of the economy, the pressure to rethink globalisation, and the shift of power to Asia, to name a few.

So far, the repercussions on the financial economy have been mitigated by extraordinary government and central bank response. Indeed, quantitative easing has swollen central bank balance sheets to unprecedented levels.

This de facto government backstop for markets has boosted confidence, and reinforced the perception that the past decade will serve as a model for the future.

We disagree, and map out a different path for the next decade.

One outcome is already clear: governments, businesses and many households will be loaded with mountains of additional debt. This has important implications for currencies and inflation. It will also play out in a context of geopolitical tensions that is likely to coincide with the rise of Asia, particularly China.

What does this mean for investments?

We see increased differentiation between industries, with technology as a clear winner. We also see pronounced financial instability and volatility. It remains early to identify the winners (or survivors) but clear trends are already emerging.

For us, greater dispersion amongst companies, industries and countries, combined with a return of volatility, are here to stay. This will mean that the trend of investing into large passive vehicles may reverse, shifting back to more nimble and active managers.

Active managers with a broader mandate and the ability to participate in inefficient markets, such as the volatility market, could be particularly attractive.

We are entering a stark new decade with an unprecedented global event, where specialised expertise can help investors tap into material opportunities and navigate uncertainty.

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