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    Skagen Does It Again

    Stockholm (NordSIP) – For professional investors in the Nordics, Skagen’s January conference has long been a cherished tradition and a great way to kick off the new year. Miraculously, the organisers manage to deliver an equally impressive line-up of speakers every time, year after year. 2023 is not an exception. Post-pandemic, the event has moved to a smaller venue, adapted to a reduced live audience, and adopted a convenient hybrid format. Despite the revamp, however, the conference’s content has preserved its customarily high quality.

    This year, the conference’s overarching theme is ‘Finding value in uncertainty’. The two main topics centre-stage are geopolitics and inflation, a clear indication of what is on everyone’s mind. None of the renowned speakers manages to avoid mentioning one of them or both. Interestingly, unlike in previous years, sustainable investing is nowhere to be seen on the agenda in 2023. Perhaps that, as well as the presence of two prominent ESG-sceptics like Mark P. Mills and Aswath Damodaran, is also a sign of our times. As Anna Kindberg Batra puts it during her speech, it is trendy to bully the ESG guys these days.

    Geopolitics: The scary world we live in

    To guide us through the obscure corridors of power in Beijing and Moscow, the organisers have invited two uniquely qualified experts: Jonathan Cheng, the China bureau chief for The Wall Street Journal, and Fiona Hill, a senior fellow at Brookings Institution in Washington and a former official at the U.S. National Security Council specialising in Russian and European affairs.

    Joining the conference from Beijing, Cheng provides a rare glimpse of his surroundings that he calls a tale of two cities, equally hopeful and depressing. As social life in the Chinese capital seems to be returning to normal and dining without prior reservation is no longer guaranteed, overfull hospitals and crematoria are a testimony that many of the city’s ordinary people are struggling. Cheng also shares some valuable insights into President Xi’s ambitions and the limits of his power. He confesses being in awe yet slightly scared by the massive mobilisation currently going on in China, both political, military, and socioeconomic. The country might not yet possess the soft power to embark on an open confrontation with the west, but Cheng assures us that it is gaining in confidence.

    Perhaps even more scary are the tales that Fiona Hill shares of the Kremlin and of Washington. Just like Xi, Putin, too, started by simply consolidating power. He has already advanced from ‘mere’ genocidal language and territorial aspirations to outright war. The question is how far he is prepared to go and how long it can last. The situation in Ukraine has already evolved into the Spanish civil war of our era, and further entrenchment could be even more detrimental, according to Hill. What she hopes for is a serious push-back from China and India, she says. After all, China was the biggest investor in Ukraine before the invasion.

    Providing a slightly different lens to the geopolitical theme and, above all, plenty of inspiration with his genuine pathos is Eliot Higgins, the man behind Bellingcat. The Netherlands-based investigative journalism group he founded specialises in fact-checking and open-source intelligence. Powerful and widely available modern technology enables us to see what is happening through the eyes of ordinary citizens, yet it also increases the risk of disinformation. To that end, Higgins’s organisation has trained thousands of journalists worldwide, equipping them with the methods and tools to authenticate the plentiful information available on the internet.

    Inflation: Brace for structural uncertainty

    Investment guru Mohamed El-Erian, the President of Queens’ College, the University of Cambridge and Chief Economic Advisor at Allianz, did not have many kind words to spare for central bankers. According to him, they have made two major mistakes: calling inflation transitory and failing to move quickly enough to stave it. He does not envy the tough choices they will inevitably face during 2023 either. By mid-year, El-Erian expects that they need to decide whether to stick to the impossible 2% inflation target, abandon it and lose credibility, or simply fool people by pretending they are still on track to 2% while everyone adjusts to the new reality of a 3-4% inflation. For the benefit of his fellow investors, he is also happy to share a simple recipe for avoiding behavioural traps in the face of uncertainty is quite simple. The ingredients are cognitive diversity, resilience, agility, and keeping an open mind.

    And, in case you still harbour any illusions that inflation might be transitory, it is enough to listen to Mark P. Mills, a senior fellow at the Manhattan Institute and a faculty fellow at Northwestern University’s McCormick School of Engineering and Applied Science. The facts he presents in his speech, ‘The Energy Transition Delusion: Inescapable Mineral Realities’, are rather sobering, not least for those of us hoping for a more sustainable future. He reminds us of the magnitude of minerals needed to accommodate the current aspirations for greater use of solar and wind technologies, alongside the massive increases in battery production for grids and electric cars. He also points out that while the world needs an estimated 400% to 4,000% increase in the mining of a range of critical energy minerals in the coming decade or two, such an unprecedented increase in global mining is neither underway nor planned nor even encouraged by most policies. His disheartening message is that the world is still reliant on fossil fuels. Energy prices will go up more, he argues, and we need to brace ourselves also for a reversal of the long trend of declining metal prices.

    On a more optimistic note, Anna Kinberg Batra, Sweden’s former leader of the Opposition, puts a lot of trust in human ingenuity. For example, she points out that the old “scientific truth” that it takes many years to develop a vaccine did not hold once we mobilised enough resources to tackle the Covid crisis. Hopefully, solutions to the climate change challenges will also materialise, given the situation’s urgency.

    Last but not least, we hear from Aswath Damodaran, professor of corporate finance and valuation at the Stern School of Business at New York University. Regrettably, by the end of a long and intensive day, few audience members are still sufficiently alert to benefit from his educational explanation of valuation models. Yet his message regarding uncertainty rings loud and clear. Damodaran points out that uncertainty has always been there, so we shouldn’t think that we are special or that it is different this time. And, before you start complaining about how unfair it is, consider the fact that uncertainty is the very reason you get paid to be a professional investor.

    Julia Axelsson, CAIA
    Julia Axelsson, CAIA
    Julia has accumulated experience in asset management for more than 20 years in Stockholm and Beijing, in portfolio management, asset allocation, fund selection and risk management. In December 2020, she completed a program in Sustainability Studies at the University of Linköping. Julia speaks Mandarin, Bulgarian, Hindi, Russian, Swedish, Urdu and English. She holds a Master in Indology from Sofia University and has completed studies in Economics at both Stockholm University and Stockholm School of Economics.

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