Macro and micro challenges to start the year
Challenges faced by local directors and global geo-political actors were addressed at the online version of the ILA Members New Year's Event on 25th January. The keynote was an assessment of the world post Trump and Covid from Thomas W. Mucha, a geopolitical strategist with the investment firm Wellington Management.
ILA agenda 2021
The agenda for 2021 was set by ILA chair Carine Feipel for the 270 people who had registered to log in the New Year event. She highlighted work on a review the ILA code of conduct, and an up-coming guide for remuneration and nomination committees. A survey is underway into how ILA’s corporate members recruit directors. Part of the motivation for this work is to assess the need for a tool which could bring companies together with directors seeking mandates. As well, a boardroom barometer survey to all members will assess current board practices. Carine also highlighted how events to mark last year’s 15th anniversary of ILA will go ahead this year, as “15+1” celebrations.
It was then the turn for Thomas Mucha to lay out his thinking about the geopolitical backdrop in 2021 and what it means for markets. “The most important geopolitical issue of the day is US-China relations,” he said. “US and China are emerging from COVID in weaker geopolitical positions, as both countries flubbed big parts of this crisis,” he noted, with this being significant because the pair “will have less ability to steer events and this speeds the world to a much more contentious, multipolar order, that's a lot harder to manage.” It’s a world with higher risks, and cooperation which is more difficult to achieve.
The departure of Trump will help, as “both the US and China are incentivised to pull this relationship back from the brink,” he said. Covid, climate and trade are all areas of potential agreement, but tensions will remain over human rights, Hong Kong, and Taiwan. Thomas sees greater coordination with allies in Europe and Asia being essential because “great power competition remains the dominant US policy position on China for the foreseeable future.”
What does it mean for investment?
For investors and consumers, this will mean “more supply chain disruptions, more trade regionalisation, and decoupling in sectors that are deemed strategic to national economic, and especially military power,” Thomas predicted. He highlighted advanced technologies as being particularly prone to these trends, especially biotech sectors.
These tensions will also manifest themselves in economic sanctions, and also state-sponsored cyber security threats he noted. While this will mean higher costs for most of us it implies “investment opportunities for cybersecurity firms, defence technology firms and consultants in this area.” We are in an era of “shadow wars” he said.
Thomas highlighted two key areas: military technology and climate change adaptation. The former will see more focus on “next generation communications technologies like 5G, missile defence technologies, space technologies, orbit technologies, launch technologies, including hypersonic weapons.” For climate change “human beings will spend whatever it takes to adapt to changes in temperature, severe droughts, water access issues, increased storms, and flooding, wildfires, and on and on.”
Decent short term outlook
That said the good news on Covid and the outlook for macro-economic recovery in the United States and Europe means “we do feel better about the macro picture in 2021” However, he said these new challenges and related risks are going to be with us for decades related to climate change, questions around inequality, and political dysfunctionality. “My advice is to think thematically about these long-term structural changes in the geopolitical backdrop,” Thomas said.