Rich Nuzum, President of Investments and Retirement, shares his views on markets and investments upon reflection of conversations at World Economic Forum in Davos and Mercer’s Global Investment Forum in Boston.
June 15, 2022
Author - Rich Nuzum
The world as we’re experiencing it in June 2022 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 this week, and three weeks ago with a wide variety of asset owners, investors and entrepreneurs at the World Economic Forum’s annual meeting in Davos. 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 security, 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. With regards to 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. 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:
These will be among the themes that will be discussed during the Learn, Share and Connect sessions that will take place next week, during the “virtual” component of our Global Investment Forum conference, where the asset managers we work with will present 180+ different investment ideas that investors can consider acting on to help improve diversification, help manage risk and pursue higher potential returns. I encourage you to attend a cross-section of sessions that fit your interests in order to gain actionable intelligence that can be incorporated into your asset allocation and portfolio construction decision.
With best wishes,
President, Investments & Retirement, Mercer
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