How to invest in a world of relentless political risk
Global geopolitics has become a "black swan" machine. Unexpected things just keep happening. How are you supposed to invest in a world full of political risk?
At our Edinburgh show earlier this year, Ruffer's Alex Chartres told us that global geopolitics had become a black swan machine. Unexpected things just keep happening. Imagine telling someone, even five years ago, that globalisation was not unstoppable. That the US would be led by a politician who would challenge the symbiotic relationship between the US and China and start a trade war one with every chance of turning into a long cold war.
But here's the thing that might have floored that person even more the idea that one 16-year-old girl might single-handedly change the valuation of an entire industry. "If there is one name everyone in the airline industry knows today that it perhaps didn't know a year ago, it's Greta Thunberg," says Virgin Atlantic boss Shai Weiss. So they should. The word flygskam (Swedish for "flight shame") was barely used before November 2018, says Citibank but, thanks to Greta, its use "has been growing in a parabolic fashion". An awful lot of people say they just aren't going to fly anymore. Airport valuations rest on a couple of vital assumptions that rates will stay low and that passenger numbers will keep rising. I'll leave the former for another time. But the latter is far from a given.
Try 6 free issues of MoneyWeek today
Get unparalleled financial insight, analysis and expert opinion you can profit from.
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
What if would-be passengers stick to the train? What if those that don't, have to pay for carbon offsets (via taxes or extra charges)? That, on Citibank data, would cost them $3.8bn a year by 2025. If the airlines took on the cost instead (in an effort to keep people flying and their volume assumptions valid) it would use up 27% of all airline profits. Doing the same offsetting for corporate consumers would cost another 17%. How's that for an anti-globalisation black swan?
How do you invest in a world of relentless political risk like this? Make sure the assets you own offer some sort of cushion against the unexpected (airports don't). Perhaps they are undervalued, have low levels of debt or are even sitting on unusually large amounts of cash. We aren't the first to wonder about this. It has looked like time for investors to shift out of high-growth, high-priced firms and into those offering more margin for error for some time now. There has already, says John Authers on Bloomberg, been a "big shift" towards value stocks ("those that look cheap relative to their fundamentals").
We will be taking a wider look at value in a few issues' time. But this week, we look at the value and income available to those brave enough to invest in Japan. Japan has long been viewed as a no-go for anyone who cares about the way shareholders are treated. That's changing and it is throwing up huge opportunities for the open minded. This is the most under-owned developed market in the world. It really shouldn't be.
-
Pensioners ‘running down larger pots’ to avoid inheritance tax as rule change loomsChanges to inheritance tax (IHT) rules for unused pension pots from April 2027 could trigger an ‘exodus of large defined contribution pension pots’, as retirees spend their savings rather than leave their loved ones with an IHT bill.
-
Why do experts think emerging markets will outperform?Emerging markets were one of the top-performing themes of 2025, but they could have further to run as global investors diversify
-
Beating inflation takes more luck than skill – but are we about to get lucky?Opinion The US Federal Reserve managed to beat inflation in the 1980s. But much of that was down to pure luck. Thankfully, says Merryn Somerset Webb, the Bank of England may be about to get lucky.
-
Inflation may be slipping but there is still plenty of misery aheadEditor's letter Inflation may be a little lower than last month as the prices of petrol and diesel fall back, but it remains structural and long-term, says Merryn Somerset Webb. And there are no painless solutions.
-
Beat the cost of living crisis – go on holidayEditor's letter As inflation rages, energy bills soar and the pound tanks, what’s a good way to save money this winter? Go on holiday, says Merryn Somerset Webb.
-
How to tackle rising inflation and falling stockmarketsEditor's letter Inflation is rising around the world. Even though inflation is widely expected to return to around 3.5% next year, it is still wreaking havoc. Merryn Somerset-Webb explains what to do about it.
-
How capitalism has been undermined by poor governanceEditor's letter Capitalism’s “ruthless efficiency” has been undermined by poor governance, a lack of competition and central banks’ over-enthusiastic money printing, says Andrew Van Sickle.
-
Don't be scared by economic forecastingEditor's letter The Bank of England warned last week the UK will tip into recession this year. But predictions about stockmarkets, earnings or macroeconomic trends can be safely ignored, says Andrew Van Sickle.
-
The biggest change in the last 17 years – the death of the “Greenspan put”Editor's letter Since I joined MoneyWeek 17 years ago, says John Stepek, we’ve seen a global financial crisis, a eurozone sovereign debt crisis , several Chinese growth scares, a global pandemic, and a land war in Europe. But the biggest change is the death of the “Greenspan put”.
-
The wolf returns to the eurozone’s doorEditor's letter The eurozone’s intrinsic flaws have been exposed again as investors’ fears about Italy’s ability to pay its debt sends bond yields soaring.
