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The coronavirus crisis has accelerated pre-existing tectonic shifts that are changing world order.
Four interlinked areas deserve the attention of long-term investors: greater geopolitical instability; the digital revolution; domestic political changes in the advanced economies; and the rise of environmental, social and governance (ESG) considerations.
Together, these make for a more volatile and inflation-prone regime, one that is less favourable to capital. In short, we’re moving from a world where profit trumped politics, to one where politics trump profit.
The ostrich effect describes a refusal to engage with negative information. Pre-pandemic, much of the investment world was in denial about the reality of Cold War II and the geopolitical regime change it entails.
Little wonder. Several decades of Great Power peace supercharged globalisation and the integration of cheap Chinese workers with the world economy. Both have been key drivers of the falling inflation, interest rates and volatility which have underwritten a Golden Age for capital. But unfettered Sino-Western entanglement only made sense if history had died with the first Cold War. It hadn’t, and a new East-West schism guarantees at least a partial unravelling of this profitable settlement.
With covid-19 fallout sending US-China relations to their lowest ebb since formal ties were established in 1979, a fundamental change in world order is now harder to ignore. Trade tensions quickly became a footnote as the tech war escalated, morphing into outright hostility and nakedly ideological competition...
This article was originally published in the Ruffer Review 2021.
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