Horizons Newsletter – week 02 // 2020
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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The return of geopolitical risk
After the collapse of the Soviet Union in 1991, the U.S. became the undisputed global superpower, and the world saw an expansion of globalization and free-market policies under the flag of Pax Americana as well as declining risk premiums. The 1990s, however, can be considered an anomaly with its unprecedented low levels of geopolitical risk. Now, almost three decades later, the U.S. is in relative decline, with the economic balance of power shifting towards the East, and China in particular. China’s challenge of the U.S. hegemony will lead to a more uncertain and volatile geopolitical climate, which is visible in the upward trend of geopolitical risk since the 2010s and of which the trade war is just an omen. Furthermore, heightened geopolitical risk is significantly correlated to stock market performance, company earnings and resource prices. As a result, the end of this “hegemonic cycle” of U.S. dominance will result in a more strategic perspective on the economy (and technology). Geopolitical metrics and analyses will have to take a more prominent place in the investment strategy of investors.
Hegemonic events brewing under the radar
The escalation of the Chinese-American trade war and controversial and contested elections across the world (e.g. in India, U.K., Spain, and Argentina) defined 2019. In 2020, the status of the trade war and the U.S. elections will probably hold most attention. In addition, the U.S. will not lose its appetite for putting pressure on its adversaries. Last week, Trump ordered an airstrike at Baghdad International Airport that killed Qasem Soleimani, a key Iranian military commander, marking a major escalation in the Iran conflict. Aside from these U.S. issues, investors should also look out for events that may surprise us in other parts of the world, such as Europe and Latin America. With the Eurosceptical U.K. leaving and the new European Commission pushing for more pan-European projects, European member states are likely to better align on strategic policies. In Latin America, meanwhile, protests were omnipresent last year and are likely to continue in 2020, but the region also implemented some important reforms, such as Brazil’s pension reform and Mexico’s $44 billion infrastructure plan. These developments show that investors should keep an eye out for surprising events that already are brewing underneath the surface.
Bubble in the making
Today’s rapid innovation and improvements in computation, storage and technologies such as AI, 5G, blockchain, AR/VR are hinting at the emergence of the next technological revolution characterized by smart and more autonomous systems. Arguably, this unfolding ‘smart revolution’ is currently enjoying a boom as investments are piling up for technology that is surrounded by great expectations, but has shown relatively few real-life and value-adding applications. As Carlota Perez’ scheme of technological revolutions illustrates, enthusiasm about new technology and its commercial value leads to a frenzy, whereby far too much capital is poured into technological development and infrastructure build-up. This frenzy leads to a major crash and only afterwards a more sensible and rewarding phase starts, during which the technology reaches full maturity. The current investment boom shows that the tech revolution about artificial technology and autonomous systems is probably in the making, but it may take years before its bubble will burst. Especially since the true promise of the technologies listed above relates strongly to the larger paradigm they may bring about once they are all in place and start working together.