Klement is a physicist and mathematician who got here to the world of finance via an unconventional route. A multidisciplinary approach is an indicator of his analyses. He incorporates different perspectives and just isn’t afraid to challenge the orthodoxies of the traditional world of finance.
I caught up with Klement earlier this month to get his perspective in the marketplace and conditions generally. What follows is a flippantly edited transcript of our exchange.
You wrote in 2019 that geopolitics and populism are making a latest market narrative to switch the market order centered on quantitative easing (QE) and central banks. How did researching and writing the book influence your perspective on this?
This confirmed the 2019 contribution. I believe the 2020s can be defined by three major geopolitical themes. First, climate change and the transition from fossil fuels to renewable energy sources will result in significant changes within the political landscape and create winners and losers within the financial markets.
Second, China’s rise and its growing role on the planet will transform international trade and intensify competition between Western corporations and Chinese challengers.
Third, in a world where data and access to it are increasingly essential, cybersecurity and cyberwarfare have gotten ever greater threats to non-public corporations and society at large. It’s a little-known fact, but even today, the fee of cybercrime to the U.S. economy is about 0.6 to 2.2 percent of GDP. And of 1,300 corporations surveyed in 2018, two-thirds reported being the goal of cyberattacks, with each company losing a mean of about $16 million per 12 months.
What was probably the most surprising discovery you made during your research?
The cost of cybercrime was one of the vital frightening statistics. But there are surprises all over the place.
Take the rise of China. We’ve all heard of the Belt and Road Initiative, which goals to fund infrastructure that may give China access to resources, suppliers and end customers. But China can be working behind the scenes to be certain that Huawei and other Chinese manufacturers should not ignored of 6G and other future technology standards that may shape the subsequent decade and beyond.
Don’t get me fallacious. China has every right to exert its influence on regulations and standards. I’m just saying that the majority investors underestimate the influence China already has on the worldwide economy and the way it’s working to turn into much more influential in the subsequent decade.
One area that just isn’t really studied in depth is pandemics. Do you think about the COVID-19 crisis a geoeconomic event?
For me, the pandemic just isn’t a geopolitical event since it was not triggered by political developments or caused major political tensions. I see it as an external shock that’s short-term in nature.
However, China has weathered the pandemic significantly better than most Western countries and is already experiencing economic growth above pre-pandemic levels. Meanwhile, we within the West are attempting to climb out of the outlet we fell into last 12 months. This signifies that China’s rise has been accelerated by the pandemic.
You predicted last 12 months that Covid-19 would change things lower than expected. What do you’re thinking that will change now?
Not much, in my view. I believe it should take longer than many individuals expect for us to get back to normal, and I do not plan on throwing away my masks or occurring vacation abroad in 2021.
Another thing that might change is that flexible working arrangements have turn into more accepted within the sense that many individuals wish to work at home more often. However, I don’t imagine that working from home will turn into the brand new normal or that office space for corporations can be significantly reduced. There is big value in face-to-face interaction between those that cannot get replaced by video conferencing. And recent surveys by Microsoft and other corporations show that that is indeed the case.
The pandemic and dealing from home have done a whole lot of damage to our productivity and skilled networks. Yes, we’re busy and seemingly more productive because we appear to get more things done. But getting things done and being creative and productively changing what you are promoting are two very various things.
International cooperation was central to each victory within the Cold War and the world after it. Populist movements have recently undermined these international structures. Do you see any signs that this trend won’t proceed?
It’s really hard to say in the meanwhile. There are clear populist trends world wide. At the identical time, countries like Germany appear to be turning away from populist parties in response to their miserable failure throughout the pandemic. It can be interesting to see over the subsequent one to 2 years whether the rise of populists will speed up again when the pandemic recedes, or whether these politicians will lose influence permanently.
How do you see the event of this latest era of geoeconomics?
Both the rise of China and climate change can be essential drivers of markets and the worldwide economy over the subsequent decade. As an investor, I’m more focused on the rise of China within the short term as that is an imminent development that I imagine must be resolved in the subsequent three to 5 years.
Climate change also needs to be solved by then, but I believe that is a difficulty where we as a world society will attempt to delay the issue for so long as possible. This signifies that the damage will pile up and we won’t seriously address the issue until it is simply too late, or almost too late. Therefore, I might expect this issue to be the dominant theme of the second half of the 2020s.
You’re based in London. How do you view the geopolitical fault lines within the UK? Brexit appears to be on course, however it has complicated the situation in Northern Ireland and hasn’t exactly reduced the likelihood of a second vote on Scottish independence. So when you were to drag out, should investors regulate these tensions?
I’m pretty relaxed in regards to the situation in Northern Ireland. We know from the history of the Northern Ireland conflict that it is a political issue and lots of geopolitical experts can have lots to say about it, but for an investor it’s essentially a non-event. Northern Ireland is just too small to make a difference.
In Scotland the situation is a little bit different. I believe it’s quite likely that we’ll see one other referendum on Scottish independence in the subsequent few years and I would not be in the least surprised if Scotland decided to depart the Union. That could be very bad for each Scotland and England and would probably trigger a recession in each countries. So it will have a big impact on UK stocks and bonds. But beyond that I am unable to see much of a serious impact.
And have the 2020 election, the unrest that followed, and the primary 100 days of Joseph Biden’s administration modified your view of the United States in any way? Are you roughly optimistic in regards to the United States?
I’m more confident that the US will meet up with Europe on crucial issues comparable to climate change. All polls within the US show that not only nearly all of the population, but additionally nearly all of Republican voters now imagine that climate change is real and that the US is already affected by it. Strangely, this view has not penetrated the minds of investment professionals within the US, and with that comes a whole lot of missed opportunities.
Think of it this fashion: surveys show that investors are willing to sacrifice a few of their returns to take a position in a more sustainable portfolio, and that they’re willing to pay around 0.5% more in fees per 12 months to take a position in portfolios with a sustainable investment aspect. Yet many fund managers refuse to integrate ESG into their portfolios, regardless that it could make them extra money and attract more investors.
What’s next? Are you working on any latest books? Is there a market area you are currently keeping a very close eye on?
I’m way too busy in the meanwhile with my job and writing a brand new post for my newsletter day by day, so there are not any books within the works in the meanwhile. But perhaps I’ll take into consideration expanding my reach within the United States a bit in the longer term. We’ll see…
Is there something I didn’t ask that I must have?
Everyone asks me today where inflation goes. I’m glad you didn’t ask that query because I don’t need to reply it anymore.
A geopolitical query that few are currently asking is the danger of information theft and cyber warfare. I believe that this risk is currently underestimated, although as I said, it is vitally damaging and, as I describe in my book, has the potential to trigger one other financial crisis or a severe recession if the cyber attack is large enough.
Thank you very much, Joachim.
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