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How do you analyse the global economic and geopolitical context and its prospects?

Updated: Apr 2

We are currently witnessing a heightened stage of geopolitical tensions, a phenomenon that aligns with the structural change paradigm articulated by renown American investor, Ray Dalio. This period marks a significant shift in the global order, where established powers are witnessing the emergence of new economic giants, particularly China and the Asian markets. The trajectory of China's growth, if sustained, is poised to reshape the global economic landscape. Concurrently, India's impressive size and growth potential position it to join the ranks of the world's largest economies, a natural progression in the historical recession and flow of global powers. 


Throughout history, we've observed this cyclical pattern of dominant economies transitioning over time. From the United States to the United Kingdom, and even further back to the Spanish and Dutch, each era has seen its share of global economic leadership. It's a testament to the dynamism of global economics that powers rise and fall in a natural progression. 


However, with these shifts comes the inevitable challenge of power dynamics, leading to geopolitical tensions, military posturing, and nationalist trade policies. The current landscape reflects this with the rise of protectionist measures such as trade tariffs and import restrictions. While these developments may be worrying, , it's essential to recognize them as part of the normal evolution of global economics. 


Understanding and navigating these shifts are integral to our investment strategy. By acknowledging the historical precedent of economic transitions and embracing the inevitability of change, we position ourselves to capitalize on emerging opportunities while mitigating potential risks. So, it's nothing to be afraid of, it’s something to be aware of. It's not a matter of fear but rather a call to heightened awareness and strategic adaptability in an evolving global market. 

Can we identify investment opportunities, in which types of products, and in which parts of the world?

While assessing investment opportunities globally, it's important to consider both emerging and developed markets. While emerging markets like India and China offer potential growth, challenges such as informational opacity and governance issues underscore the need for cautious investment strategies. Diversification into emerging markets is prudent, but not without acknowledging the associated risks, particularly in terms of currency fluctuations. 


Financial hubs like London remain attractive investment destinations, demonstrating resilience and innovation despite shifts in global economic dominance. Recognizing the interplay between geopolitical dynamics and investment outcomes is essential, especially amid discussions within BRICS nations challenging the hegemony of the US dollar. 


This broader context emphasizes the importance of considering alternative investment asset classes to navigate the evolving global landscape effectively. As an example, Private credit, a trillion-dollar marketing in USA, represents promising opportunities, offering avenues for attractive returns while mitigating risks associated with traditional investment instruments. 


In summary, a strategic approach that incorporates diversification across regions and asset classes, coupled with an awareness of geopolitical factors and the potential for currency shifts, is key to identifying and capitalizing on investment opportunities in today's dynamic global environment. 


Traditionally, wealth managers advocated for diversification to "not put all eggs in one basket." Some no longer agree with this principle. What is your opinion? 

I strongly believe in the concept of diversification which remains paramount, particularly amidst the current global landscape characterized by profound shifts in power dynamics and technological innovation. These dynamics underscore the need to adopt a strategic approach that includes various investment opportunities across different regions and asset classes. 


Geopolitical tensions and technological advancements are continuously reshaping the investment landscape. The rise of AI innovation, coupled with Taiwan's role in semiconductor production, highlights the importance of considering geopolitical factors when identifying investment opportunities. Additionally, geopolitical tensions in regions like the Middle East and Eastern Europe pose potential risks that investors must navigate. 


Taking these complexities into account we advocate for a diversified approach that extends beyond traditional asset classes. Trends such as luxury goods, aerospace and defence, and low volatility assets present compelling investment opportunities that are not limited to specific companies but rather encompass broader trends. This shotgun approach allows for diversification and mitigates risks associated with investing in individual companies. 


We also emphasize the importance of incorporating different asset classes like cryptocurrencies and private credit into investment portfolios. While larger players are beginning to recognize the potential of these assets, our early entry into crypto-centric hedge funds and private credit investments has positioned us ahead of the curve. These alternative assets offer diversification benefits and reduce overall portfolio risk, particularly for investors in emerging markets or those exposed to currency fluctuations. 


In conclusion, while the principle of diversification remains unchanged, its implementation requires a profound understanding of global trends, geopolitical dynamics, and emerging asset classes. By adopting a diversified approach that includes various investment opportunities, including emerging trends, cryptocurrencies, and private credit, investors can effectively navigate the complexities of today's investment landscape while maximizing returns and mitigating risks. 

It is said that the greater the risk taken, the greater the potential gain. Is there a fair balance? What advice can you give? 

Certainly, the relationship between risk and potential gain is a fundamental consideration in investment management. Our role as investment managers is to provide a balanced approach to risk-adjusted returns, optimizing the probability of returns relative to the level of risk undertaken.  


In assessing new investment opportunities such as cryptocurrencies, we acknowledge the evolving risk-return dynamics. While earlier adopters may have seen astronomical returns, entering at higher price points reduces the potential upside while simultaneously mitigating risk. As cryptocurrencies mature and regulatory frameworks evolve, the risk profile adjusts accordingly. 


Similarly, private credit presents an evolving landscape. While it has grown into a substantial industry, it remains characterized by opportunities for growth without reaching saturation or bubble territory. This signifies a favorable risk-return balance for investors seeking exposure to this asset class. The focus on capital preservation, coupled with the potential for attractive risk-adjusted returns, makes private credit an appealing proposition for investors seeking stable income streams and reduced volatility in their portfolios 


Overall, our advice is to carefully assess investment opportunities, considering both potential returns and associated risks. Timing plays an important role, and we aim to allocate investments when risk levels are reduced, but return potentials remain compelling for the prudent, moderate and risky investors. 


This is not an offer to buy or sell, or a solicitation of any offer to buy or sell any of the investments or assets mentioned herein. The information presented does not involve the rendering of personalized investment, financial, legal, or tax advice. Certain statements contained herein may constitute projections, forecasts, and other forward-looking statements, which do not reflect actual results. Information provided by third-party sources are believed to be reliable and have not been independently verified for accuracy or completeness and cannot be guaranteed. Any opinions, projections, forecasts, and forward-looking statements presented herein are valid as of the date of this communication and are subject to change without notice. The information herein represents the opinion of the author(s), but not necessarily those of Stewards Investment Capital Ltd.

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