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    Facing Up To The Polycrisis

    Stockholm (NordSIP) – Language needs to adapt to unprecedented situations, hence the rise in the number of neologisms over the last few years.  Hans Stegeman, Chief Investment Strategist at Triodos Investment Management (IM), chooses to focus on one of these as he presents the firm’s 2023 Impact Investing Outlook on November 29th.  For Stegeman, the word that best describes the current situation is polycrisis.

    He explains that the economy in 2023 must be looked at through a completely new lens.  The relatively predictable elements of the global economy of the last 40 years have no longer applied since 2020.  Stegeman believes that many asset managers have missed this “regime change” and are still planning ahead with a business-as-usual mindset.  This polycrisis, as illustrated in Triodos IM’s graphic below, means that the economic factors at the centre cannot be considered in isolation as they are inextricably linked to the outlying powerful social forces and ecosystem threats.  As Stegeman put it, when faced with this combination of global political instability, the crisis in nature, a possible reversal of globalisation trends and radical changes in fiscal policy, “we don’t have a clue.”  He believes that traditional growth and demand-driven solutions should be reconsidered in favour of more radical sustainability-based measures.  Stegeman also highlights what he calls the negative influence of the “asset manager economy,” whereby a de facto oligopoly of mega-managers has the power to sway the economy and regulatory environment based on their short-term goals.

    Developed markets outlook

    Investment Strategist Joeri de Wilde presents the outlook for developed markets, which is largely driven by inflation concerns.  This is expected to gradually decline, with the UK and the Eurozone lagging behind the USA and Japan, where this will help these latter two markets regain a certain level of private consumption.  Unfortunately, Japan is the only country expected to move below the Central Banks’ target of 2% towards the end of next year.  De Wilde also singles out Japan as the only developed market to avoid a period of recession over the next 12 months.  He concludes with the view that given the muted growth expectations in the mainstream economy, investors should be looking at a renewed focus on innovative, sustainability-driven opportunities as a source of returns.

    Emerging markets outlook

    Turning to developing markets, Investment Strategist Maritza Cabezas explains that many of these countries are doing relatively well though the polycrisis, thanks to their fairly strong fundamentals at the outset.  Cebezas points to various emerging market central banks having pre-emptively increased rates ahead of the USA, which helped broadly avoid currency crises.  This does not apply to some countries such as Turkey, Argentina or Sri Lanka which have been badly hit.  Cabezas expects China and India to continue demonstrating fairly healthy growth rates, partly thanks to their capital reserves and high levels of private savings.  China’s attempts to become more resilient through a greater emphasis on consumption have stalled somewhat, and they are also suffering the societal and economic consequences of the ongoing lockdowns.  Cabezas explains that Triodos also tracks opportunities in high-risk frontier emerging countries, with a very long-term impact-orientated outlook.

    Stegemans concludes with a reiteration of Triodos IM’s conviction that resilience should be a focus for 2023, and that investors need to face the polycrisis with a radically changed mindset that considers the planetary boundaries, systemic risks exposed by the Ukraine war and the need for a forward-looking reconnection with the real economy.

     

     

    Image courtesy of Terry McGraw from Pixabay
    Richard Tyszkiewicz
    Richard Tyszkiewicz
    Richard has over 30 years’ experience in the international investment industry. He has worked closely with major Nordic investors on consultancy projects, focusing on the evaluation of external asset managers. While doing so, Richard built up a strong practical understanding of the challenges faced by institutional investors seeking to integrate ESG into their portfolios. Richard has an MA degree in Management and Spanish from St Andrews University, and sustainability qualifications from Cambridge University, PRI and the CFA Institute.

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