We live in revolutionary times. The implications of tech disruption, a shift to quantitative tightening and the populist revolt against globalisation dominated debates at Schroders’ investor conference in Madrid recently. With many markets near all-time highs and the best synchronous global growth this decade, the focus was as much on the secular trends as the cyclical. How these three transitions play out have profound implications for investors and policymakers alike.
Lenin once observed: “There are decades which pass and nothing happens; and there are weeks where decades happen.” And so it feels with technology. The bankruptcy of Toys R Us, the acquisition of Whole Foods, the upscale grocer, by Amazon, the ecommerce giant, and China banning initial bitcoin offerings have reminded us of the pace of tech transformation.
But investing is a marathon, not a sprint — as I have been reminded as I train for a charity half marathon.
In the past 10 years, Amazon’s market value has grown tenfold and the value of Alphabet, the parent of Google, over threefold. The value of Sears, the US retailer, has fallen more than 90 per cent, and that of Staples, the office-supply chain, by half.
Little wonder that half of the investors at our conference said tech disruption would have the most impact on their portfolios over the next decade, ahead of quantitative tightening at 32 per cent, although this was the top issue for the next 12 months. The implications of populism came third.
Margins and profits are shifting at a challenging pace due to tech disruption. We are well into this change in some sectors — such as music, advertising and books — but in others we are at a much earlier stage. Working out who’s next to be “Amazon-ed” is the topic du jour.
One intriguing question is why financial services has not been disrupted much, at least not yet. Fintech has led to a marked improvement in customer service and a sharp fall in the cost of payments, but it has not unseated industry leaders. However, financiers and policymakers are waking up to the risks of tech disruption, including non-bank companies skimming the cream or the alarming boom in bitcoin.
Quantitative tightening is the second transition investors need to navigate. Few interventions in the history of central banking have been as dramatic as the European Central Bank and Bank of Japan’s expansion of their balance sheets to support their economies. Their balance sheets now…