Disruptive trends: exploring new opportunities
By Yves PERRIER – CEO of Amundi
In uncertain economic times, marked by systemic longterm changes and political unrest, it is important to take a step back to analyse the evolving environment. Disruptive trends-the major economic and societal shifts that influence the economic environment and, by extension, portfolio allocation and investment decisionsare shaping our world. This presents both challenges and opportunities, said Yves Perrier, Chief Executive Officer of Amundi Group, in his opening remarks at the 2017 Amundi World Investment Forum in Paris.
A NEW PARTNER TO INCREASE AMUNDI’S REACH AND EXPERTISE
Addressing an audience of over 500 delegates from over 50 countries, Mr. Perrier opened the Forum by underlining Amundi’s growing strength and reach through the acquisition of Pioneer Investments. This consolidates Amundi’s position as a leading European asset manager and places it among the top ten worldwide. The synergies with Pioneer will further enhance Amundi’s expertise and increase its reach, since Pioneer has substantial experience in European equity, emerging debt, and US dollar strategies. The acquisition will also consolidate Amundi’s position as the largest asset manager in France, make it numbertwo in Italy and Austria, and make it the leading foreign asset manager in Germany.
« Amundi is entering a new phase of its development with the acquisition of Pioneer Investments. With this acquisition, Amundi is consolidating its position as European leader and joining the global top ten. »
POLITICAL AND ECONOMIC CHANGES ABOUND, BUT GROWTH HAS RETURNED
Amundi is now readier than ever to face the growing challenges in the political and macro-economic environment, stressed Mr. Perrier. These include rising populism, increasing geopolitical risks, worsening inequality, and uncertainties stemming from Brexit and the US election.
The world is undergoing fundamental transformation and disruption, he emphasized. In the economic sphere this is being felt, “not just in the accelerated development of new technologies, but also in the general environment of low growth in the western world and the persistence of very high levels of debt.”
Meanwhile, in the political sphere, it manifests itself through the growth of populism, a symptom of the societal changes caused by uncontrolled globalization and rising inequalities. And finally, he added, the transformation has a geopolitical dimension, as evidenced by Brexit, the shift in US politics under Donald Trump, and the emergence of a multi-polar world.
But not all the news is bad, he insisted. Overall the world is doing much better, with growth returning after the Great Recession, likely rising to 3.5% in 2017. This could slow down however, since much of the growth has depended on very low interest rates and quantitative easing in the Eurozone and Japan, which cannot continue indefinitely. The effects of these policies are now only marginal, so further growth gains will be limited.
The good news is that solid structural factors are also starting to contribute to economic expansion; for example, the growth of the middle class in emerging markets. And while free trade is facing some opposition, the terms of trade remain favorable for many least developed countries. In addition, technological progress will continue to drive growth through increased productivity.
« Crisis was the key word of the last decade, but crisis only really refers to a transition from a former state to a new one. Understanding what’s at stake in this transformation is the purpose of this forum. »
IMBALANCES AND RISKS REMAIN, BUT OFFER AN OPPORTUNITY FOR EUROPE
Nonetheless, warned Mr. Perrier, there are important imbalances and divergences within and between countries. Trade balances are increasingly skewed, with huge surpluses in Germany and China and large deficits in other countries, especially the US. Similarly, the divergence in the distribution of added value is increasingly in favour of a handful of technology giants in the US and China, and the economic elites. This is leading to shrinking middle classes in developed countries. Moreover, the advanced economies underestimated the time needed to absorb the financial crisis and excessive debt, leading to what some call secular stagnation.
Geopolitical instability is also reappearing as a risk factor, Mr. Perrier warned, and must be incorporated into analytical frameworks and investment decisions. Brexit is one such factor, as are instability in the Middle East and the capricious changes in US policies. Moreover, the rise of emerging economies, such as China, India, and Russia, is shifting economic and political power east, transforming trade and globalisation.
These risks, and the volatility they generate, must be incorporated into investment strategies as permanent risks. “Investors need to price-in this new, often unstable environment by adapting the broader strategies of their investment policies and asset allocations,” he cautioned.
However, some of these unexpected changes – for example Brexit and the new political backdrop in the United States – offer an opportunity for Europe to carve out a greater role for itself as a power in the emerging multi-polar world. “For our clients, I believe this is a key investment theme to focus on,” underlined Mr. Perrier. While geopolitical risk may be reappearing on the global stage, it has all but disappeared from the eurozone with the defeat of populist parties in recent elections.
« Europe can emerge a winner from the ongoing reconfiguration of the world into a multi-polar structure. »
INVESTORS CAN HELP MAKE GROWTH MORE EQUITABLE
However, we should not ignore the causes of populism, he cautioned. These include the persistent decline of the middle classes over the past ten years, rising inequalities and less sharing of added value with labour, and the diminished capacity for redistribution in some countries due to budget constraints.
“The challenge now is to achieve growth that returns hope to the middle classes. And the reforms on the way, whatever they are, will only be effective if they address their social aspirations,” said Mr. Perrier. Investors have an important role to play, encouraging companies to develop long-term strategies that look beyond financial profitability and incorporate social and environmental factors.
Amundi, he stressed, has always made socially responsible investment a pillar of its policies. Currently, nearly 20% of all assets it manages are assigned issue ratings according to ESG criteria, which impacts how the securities are weighted in portfolios.
Summing up political developments, Mr. Perrier said: “On the geopolitical front, we are entering a multi- polar world that will be less predictable. We will need to get used to this. To take an analogy from geology, we need to understand how the ‘tectonic plates’ are moving, or simply to relearn history. In the early 1990s, Fukuyama predicted the ‘end of history’. We can now say with certainty that history is back.”
On the economic front, if you use the decade prior to 2007 as a benchmark, then the crisis still isn’t over, he said. If, like Amundi, you think that period was atypical, owing to excessive debt and financial sector exuberance, then you must conclude it has ended and that we have entered a new environment. This is characterised by renewed growth, although at persistently lower levels, with low inflation and low interest rates. Furthermore, economic development will be more region-centric, with weaker growth in international trade.
“However,”, concluded Mr. Perrier, “we won’t see a reversal of globalisation as some believe, but rather an intensification of conflicts of interest between the various economic blocs. In this regard, the IMF recently proposed moving away from the concept of ‘free trade’ in favour of ‘fair trade’. We believe this could be an adequate response to the current imbalances and could contribute to solutions to the societal challenges facing the West.”