There is a swing in geopolitical power away from the West to the East, where India and China are flexing their might in different ways. At a societal level, Western democracies are increasingly volatile. Inequality is increasing, and young people are feeling betrayed “by the system” and looking for change. Africa is struggling with unemployment and lacklustre economic growth, with poor governance and irrational government policies as the biggest roadblocks to growth. Technological advancements will play a role in the employment markets, but perhaps not in the way predicted.
What am I monitoring?
There are real concerns about valuations of part of the US stock market; valuations are like gravity. Eventually, they will impact share price growth. However, the impact could be variable. Prices might fall, drift sideways or continue climbing for a time. While we know that share prices of expensive businesses cannot rise forever, they might remain high for longer than anticipated.
- The US is faced with political uncertainty, with Trump promising to shake things up. It is important to remember that Trump could deliver on his promises, do the opposite or effect some small changes and claim them as big successes! Remember his promise to “Build the wall and make Mexico pay for it”? The only confident prediction I can make about Trump is that his presidency will not soothe markets through stability. In addition, the UK continues to decline in economic and political relevance. Britain’s historical role as a world power is a few chapters old, and Brexit will continue to diminish Britain’s global significance. Europe is also very unstable, with Germany now being a source of instability instead of its traditional role as a stabiliser. Political change is afoot across Europe, and the new normal will take a few years to solidify.
- In contrast, some developing markets are cheap and might offer investors great opportunities. Consider how India is emerging as an economic and geopolitical powerhouse. Western investors continue to classify China as an emerging market, which now seems outdated.
- Technological change might not be as devastating to employment as forecast. If artificial intelligence (AI) is as impactful as predicted, the outcome could be increased productivity and economic growth. Any economic historian will know there are always winners and losers when new technologies are unleashed on business. The fear mongers will always predict that change will be harmful. History has not been kind to these fearmongers during previous times of technological change. With the US at the forefront of so much technological innovation, one will expect unemployment to be sky-high if technology harms job creation. However, unemployment numbers in the USA show that most people can get a job if they wish. The problem is that the salaries they earn for the work are too low. This is not the fault of technology; it is a sign of an imbalance between the handfuls of incredibly wealthy people who have lobbied the government to suit their needs at the expense of workers.
What to do?
Let’s exercise extreme humility in the current circumstances. There are so many variables that it would be very brave or foolish to allocate significant portions of your capital to sectors or geographies based on forecasts. US tech shares might all collapse in price next year or they could double in value. While short-term forecasting is a nice hobby, I’m not convinced it is a high-probability strategy for making money.
If anything, I would allocate capital as widely as possible. In times of elevated uncertainty, additional diversification is a very rational decision. This includes diversification over time. In other words, if you invest lump sums next year, it might be worth phasing your capital into the investment markets over a six-month to 12-month period. This strategy might cost you some growth if stock markets boom in 2025, but the possibility of capital protection, if markets implode, is more valuable to me than lost growth. Lastly, don’t ignore your South African holdings; the local economy has been stagnant for so long that any positive surprises could lead to significant growth off a low base.
