Horizons newsletter – Week 02 // 2018
Horizons is a bi-monthly Dasym Research initiative to show you how the Dasym themes have been in the news. We publish the Horizons on our website and as an email newsletter. If you wish to receive the email, please contact Investor Relations.
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Three wildcards of Hegemonic Shift in 2018
Last year started with much anxiety: Brexit negotiations and the Trump presidency commenced and high profile elections in France and Germany were on the agenda. 2018 seemingly starts with less political issues, but under the radar three possible disruptive events that do not receive much attention are developing. The first is increasing pressure on Germany. Angela Merkel will fulfill her last term with a fragile coalition when simultaneously the balance of power in Europe is shifting that further weakens Germany’s leadership. Poland is emerging as the leader of a defiant Eastern bloc and – with Brexit materializing – France could lead a powerful Mediterranean bloc. Secondly, Latin America’s two largest economies, Brazil and Mexico, have elections this year. Although the region recently shifted towards more liberal and reformist leadership, radical politicians like Lopez Obrador and Bolsonaro could prove to be wildcards. Finally, in 2017 India and Japan were slowly moving closer together as part of a maritime alliance. This year the alliance could strengthen and possibly bring in countries like the U.S. and Australia. Thus whereas certain risks (like North Korean aggression) are clear, wildcards like these may prove to be more disruptive.
Goldilocks won’t meet the bear for now
Worldwide macro-economics in 2017 were characterized by the ‘Goldilocks’-scenario: a synchronized and broad-based accelerating GDP growth, coupled with low inflation and low interest rates. For 2018 the two most important macro-economic factors will be worldwide core inflation and GDP growth. Inflation because it drives interest rates and thus capital market flows and the prevailing investment regime. Although worldwide unemployment is falling, wage growth is still below average levels suppressing core inflation for now. The other important macro-economic factor is growth of the global economy and in trade. Here improved consumer and producer confidence numbers indicate an acceleration in worldwide GDP growth. However, since these confidence numbers are already at business-cycle highs, improvements in the course of 2018 will be more challenging and are partly dependent on continuing relative accommodative monetary policies and no increase in worldwide protectionism. At the start of 2018, indicators are signaling a continuing GDP growth and relatively low inflation. Another Goldilock-scenario for 2018 seems difficult to repeat, but it’s too early to meet the bear on capital markets for now.
Making the most of the Bitcoin hype
Much is written about the Bitcoin from the perspective of speculators; how long will the bubble last? What is the intrinsic value of the Bitcoin? What we are seeing, however, is not just a speculative and, arguably useless, frenzy. Rather, the Bitcoin is part of a broader technological hype regarding cryptocurrencies and blockchain technology, which may actually result in valuable innovation. That is, purely speculative bubbles, such as the infamous 17th century Tulip Mania, only move capital between speculators without really adding any value. By contrast, technological hypes (e.g. artificial intelligence, virtual reality or blockchain) tend to trigger investments in R&D and ultimately result in new and better technology. Investments in Bitcoin itself will not stimulate innovation, but Bitcoin may serve as a gateway to investments in other cryptocurrencies with more profound economic or societal objectives, for instance to manage a decentralized energy system or create transparency in a value chain. If and when the Bitcoin-bubble bursts, those currencies may survive unscathed (or even flourish) and deliver on their promises.