Striving to settle differences in Davos

Graham Smith
Graham Smith
Market Commentator24 January 2018

This week’s meeting of some of the world’s great minds in the Swiss ski resorts of Davos and Klosters provided an enticing backdrop for markets.

The mingling of more than 3,000 top politicians, CEOs, academics and leaders of non-profit organisations together with a sprinkling of A-list celebrities was always bound to brighten the business pages in an otherwise lugubrious month.

One of the rewarding aspects of Davos – provided you can endure three long days and nights of conferences, workshops and working dinners in late January – is that you may discover something genuinely new about fields of human endeavour way beyond your normal speciality.

That unexpected discourses are preceded for most by a protracted but scenic railway journey to get there – via a mainline train from Zurich Airport then a small branch line spiralling into snow capped mountains – seems fitting.

Some of this year’s headline political attendees embody the idea that journeys underway risk pointing human efforts and the world’s resources in opposing directions. Davos seems as good a place as any to address that.

From President Trump’s insistence on America First and withdrawal from the Paris climate accord to President Macron’s desire for greater European integration and the stepping up of efforts to counter climate change, some policy thrusts couldn’t look farther apart.

The great rise in populism in 2016, which caused considerable uncertainty ahead of a spate of general elections in the US and Europe, encouraged politicians to offer up a wide range of competing solutions, each with a strong core of support.

This year’s theme – “Creating a Shared Future in a Fractured World” – might seem appropriate in any year, but particularly so now.

While Donald Trump may encapsulate the first-world challenges facing politicians, growth inequality in developing countries remains even more pressing. In recognition of that, perhaps, the Prime Minister of India was the politician invited to open this year’s annual meeting.

According to Oxfam, the stark reality is 82% of the global wealth created over the past year went to the richest 1% of people, while the bottom 50% received nothing1.

Then there’s the untapped potential brought about by gender inequality. Marking “Year of the Woman”, this year’s Davos event was led by an all-female panel of co-chairs.

The World Economic Forum’s own research concludes it will take 217 years to achieve gender parity at current rates of progress. The key to changing this, it says, is to increase the proportion of female leaders, via improved hiring rates as well as the building of strong internal pipelines for promotion within companies2.

You might argue this year’s fractured world theme only tells half the story. In some ways, for better or worse, the world is aligning and that’s mostly coming about through technology – social media; e-commerce; industrial automation; failure resistant food crops; banking the unbanked in emerging markets and so on.

Just this week, in an interview with the BBC, former GCHQ chief Robert Hannigan highlighted the huge power social media organisations now have over governments3.

Then, if we focus on what is actually happening in America – as opposed to the catalogue of contentious even divisive tweets from the White House – we see a strong stock market and economy; low and shrinking unemployment; wages increasing; and the first big, across-the-board tax cuts since the Reagan era.

The current, extended spell of synchronised global growth suggests that what is good for America might actually be good for the rest of the world too.

The IMF certainly sees it that way. On Monday, it raised its world growth forecasts for this year and next to 3.9%, attributing about half of the 0.2% rise to US tax cuts encouraging businesses to invest4.

So what can we learn from all of this? The big issues raised in Davos probably won’t be solved there. We may though emerge from the week with a deeper understanding of some of them. More importantly, our political and business leaders may do the same, perhaps even one or two them with a more “let’s do this” mentality.

Investors can tap into some of the world’s fastest growing markets via Fidelity’s Select 50 list of favourite funds. Global emerging markets funds, including the Lazard Emerging Markets Fund and Fidelity Emerging Markets Fund, offer an exposure to strong growth in China and India and many other countries besides.

Closer to home, investors can still access a sizeable exposure to global growth themes. The LF Lindsell Train UK Equity Fund factors in a rising demand in emerging markets for branded goods, with large holdings in the luxury goods company Burberry, global beverages producer Diageo and consumer products group Unilever.

Sources:

1 Oxfam International, 22.01.18

2 World Economic Forum, 02.11.17

3 BBC News, 22.01.18


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