Author: Rich Nuzum, Executive Director, Investments & Global Chief Investment Strategist

The world as we’re experiencing it seems quite different from what we became used to between the Global Financial Crisis and the end of calendar 2021. “May you live in interesting times” – an ironic invitation to live during times of uncertainty and disorder, a curse really – has never felt so apt.

 

Geopolitical tensions – and their impact on financial markets and our shared economic future – are dominating conversations across the global investment community. I’ve had the opportunity to participate in these conversations with clients and colleagues at Mercer’s Global Investment Forum in Boston, and with a wide variety of asset owners, investors and entrepreneurs at the World Economic Forum’s annual meeting in Davos in May. Reflecting on what I heard in both conferences, I would like to share some of my perspectives on the areas that merit heightened focus by institutional investors in the coming months.

 

We’ve been confronting a tangled knot of global risks as we begin to emerge from the pandemic. The fallout from Russia’s aggression in Ukraine and China’s zero-COVID policy – food and energy price shocks, market volatility, supply chain disruptions, concerns about recession and stagflation, among others – are some of the immediate risks. Over longer time horizons, there is a strong sense that we aren’t making fast enough progress on addressing income inequality, climate change, loss of biodiversity and water scarcity, and that the urgent need to focus on addressing near term risks may make all of this more difficult.

 

Some market commentators have suggested a move to de-globalization as a result of these trends. Others have advocated shying away from investments in China. Based on my conversations from Davos and Boston, it is my view that companies will ultimately double down on globalization, but with a much greater focus on redundancy and resiliency of supply chains. Regarding China, Mercer had believed that China weights were a key single country decision before the pandemic, and that different asset owners would reach different weighting decisions based on their objectives, risk tolerance and constraints. Now, amidst heightened concerns about geopolitical tensions, continued zero COVID policies, and multiple concerns under ESG frameworks, many asset owners may reach a different weighting decision, but in my opinion the China weighting decision remains a key element of global diversification strategy for institutional portfolios. China’s role in the global economy has become too large to ignore, and defaulting to the weight arrived at by a given global index provider is an active decision taken by default.

 

More briefly, here are some other areas that, in my opinion, deserve focused investor attention and continued dialogue in the coming months:

 

  • The increasing role of private market investments in propelling the global economy;
  • The continued progress of ESG despite recent ‘anti-woke’ sentiment; and
  • A continuation of digital disruption which will create both opportunities and challenges in public markets.

These themes were discussed in detail during the Learn, Share and Connect sessions at the recent Mercer Global Investment Forum held in Boston, where our partners across the investment management industry presented 180 different investment ideas that investors can consider acting on to help improve diversification, help manage risk and seek higher expected return potential. Recordings of some of these sessions are held on MercerInsight® Community for members to watch that fit their interests, in order to gain actionable intelligence that can be incorporated into asset allocation and portfolio construction decisions.

 

With best wishes amidst what are indeed interesting times,

 

 

Rich Nuzum

 


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