Investment Desk Bulletin

20 September 2017

Longer-term global macro trends

IDB 20 09 17

By Roger Jones

Understanding longer-term macroeconomic themes is a crucial component in developing our investment strategies. In this week’s macro IDB we look at the structural versus cyclical trends affecting global growth.

High levels of indebtedness in the US and developed world have hampered growth since the financial crisis. Over the longer-term we have seen similar cycles of rising debt levels in the US, but these have usually been during periods of conflict.

Emerging Markets (EM) are still experiencing structural growth; household debt as a percentage of GDP remains markedly lower in EM, labour productivity growth is ahead of the developed world and growth is being supported by an emerging middle-class consumer.

Rising globalisation has been a key driver of longer-term inflation trends. Inflation has been on a downward trajectory since the 1970s when globalisation started to accelerate. Threats of increased protectionism mean we may see a reversal of this trend.

Technological advancements boost productivity and lower costs for corporations. However, there are potentially short-term negative shocks for labour markets from increased automation.

An aging global population coupled with declining year-on-year population growth is dampening growth, putting a strain on resources (particularly healthcare) and questions the future sustainability of pensions and benefits.

At London & Capital we have positioned our asset allocation strategically to take advantage of longer-term macro themes. Our London & Capital funds have minimal exposure to sectors which will be impacted by these trends, for example, retail, oil & gas and pharmaceuticals or countries such as Japan that are suffering demographic and debt challenges.