The world is shifting towards multipolarity. It is dynamic, intense, and interesting; but for investors, it is difficult to predict and model.
In a multi-polar world, it is tough for any few countries to exert influence. It is also tough to exclude countries from our current highly intertwined global system. The world must increasingly coordinate to grow.
Challenges to multilateral coordination remain due to lower trust between governments as well as ingrained biases. For example, the general American still thinks “babies are cute, China is evil”.
The United Nations remains an important venue for countries, particularly under-represented countries to collectively voice out. Countries should not abandon the United Nations, rather work in tandem to improve the role of United Nations for better multilateral cooperation.
Much of superpowers’ actions are reactionary and short term by nature. Investors should not overstate short-term hiccups, but rather focus on long-term structural megatrends.
Energy-driven inflation is the single most overstated issue. In reality, issues such as food-driven inflation and supply-chain security are the spotlights for most governments.
Foreign policy is essentially a response towards domestic political pressure. To rein in increasing domestic political pressure, leaders tend to look “outward” and implement aggressive foreign policy, further encourage nationalism.
Emerging countries such as Malaysia should continue to remain neutral to reap the spillover benefits from the geopolitical risks that arise from multi-country strategic competition. However, it is important to be careful and selective towards any supply chain reshoring opportunities.
With Environmental, Social, “Geopolitics” (ES “G”) becoming the reigning agenda, investors should construct their portfolios by considering diversification in a sustained and higher inflationary environment.
“Greenification” is great, but it must be balanced out by addressing the demand-side issues and proper transition. Therefore, investors should adopt a barbell strategy by focusing on brown assets in public markets and building green assets through private markets.
The CAPEX boom due to geopolitics and climate change will continue to fuel inflation. Investing focus will transition from chasing short-term capital gains to cash-flow generative, capex-focused companies. Investors need to be patient as reflecting quality growth in portfolios is a long-term journey.
The concept of diversification is extensive and should be incorporated into talent building in every organisation. Hiring talents across diverse backgrounds is key to successfully addressing multifaceted issues.