“No one has been able to escape the geopolitical winds that had been blowing,” said Tina Fordham, independent geopolitical strategist, at a conference in Luxembourg in late June. “I don’t think that we should consider geopolitics as some kind of force of the nature, like an earthquake, that we can’t control.”
Just like economists [that tend to] overpredict recessions, political scientists overpredict new cold wars, and even new wars
Yet, some new buzzwords have appeared in the geopolitical sphere that gives the impression of a loss of control. “Polycrisis,” a word seen in “a lot investment research,” is the idea “that there are so many crises and they’re all interlinked,” stated Fordham. Vuca, an acronym from the US military, standing for “volatility, uncertainty, complexity and ambiguity, [is the] same sort of idea.”
Fordham explained “we can be systematic in our thinking and put some structure” around geopolitical upheavals we are confronted with. However, it also means that we must review our cognitive biases about “hyper-globalisation and convergence.”
Fordham observed that despite a long list of political crises, including 9/11, these events have had “fairly limited impacts.” Given some favourable circumstances, central banks responded to these political episodes with a very accommodative stance that investors interpreted into lower rates for longer, a supportive outcome for capital markets and the economy.
“Just like economists [that tend to] overpredict recessions, political scientists overpredict new cold wars, and even new wars,” said Fordham. She thinks that the liquidity provided by central banks and stable energy supplies have contributed strongly to “the most peaceful and prosperous [period] in all of human history” in the last 20-25 years.
Could the recent gains turn into losses?
Yet, she believes that the world is going backward on indicators such as poverty and human development. “We’re going to see more unfreezing of frozen conflicts and unrest if we don’t do a better job of investing in stability [to maintain the recent gains].”
Fordham opined that: “we have both a significant uptick in geopolitical risks, as well as the most complex fiscal and monetary policy outlook we’ve had for some time.” She argued that the current generation of investment managers have not had to cope “with inflation risks, nor have [they] had to deal with geopolitical risks.” Consequently, we need to “improve our tools.”
Intentional laggers on ESG shifts?
“I talk to a lot to boards, and to C-suites,” said Fordham. She recounted a discussion she had, in Canada, with executives in the North American commodity business during which the green energy transition was referred to as “pixie dust” by one participant.
Fordham opined that the industry, overall, may now do their due diligence on ESG and traditional risks, but “less time is focused on: are you driving this demographic shift?” She claimed, in fact, that she was the only woman on the programme and in the room at that commodity conference.
German defence minister hit by concept of normalcy bias
“If you’ve grown up during a time of peace and prosperity, it’s extremely difficult to get your mind around the idea of anything other than that happening.” As a result, the German defence minister had to be evacuated from Kyiv on 23 February 2022, despite having “complete access to US intelligence.”
It was a “huge lesson” for Fordham, who is now adopting more cognitive science into her approach.
She thinks that industrialised democracies fear change whereas investors in Latin America, the Middle East, Africa and Asia, “do not feel pessimistic about today because they are experienced in all kinds of disruptions.” She therefore suggests to “prepare our mind getting used to it.”
Peace through commerce, another common cognitive bias
“Security has become prioritised over commercial considerations,” said Fordham. The concept of peace through commerce is “one of the biggest casualties” of the war in Ukraine. She welcomed the visit to China of US secretary of state, Anthony Blinken, expressing the desire for the US-China relationship to have “guardrails.”
Yet, Fordham does not sound too optimistic as the record of highly consolidated autocratic regimes is not “very good.” This is not good news as president Xi has consolidated more power in his hands “than any Chinese leader since Mao.” She observed that the rotation of leaders in the Politburo in China as well as in the Soviet Union helped insulate these countries “from any one individual exerting too much influence.”
A busy political agenda for the next 18 months
Whereas populism is still current in the US, Fordham has noted the rise of “right wing populism with a strong dose of nativism that’s doing well in Spain, in Greece, and perhaps Italy.” It is not a common programme from the right that “tends to be kind of old style of tax cutting, you know, small government, quite the opposite, free spending and intervening in business.”
2024 will not only be a year of elections for the US, European Parliament and UK, but also for systemically relevant Indonesia, India, Mexico, South Africa, Ukraine and Russia, where the election of Putin may mean that he will have ruled the country for a longer period than Stalin by the end of his term.
“A peaceful conclusion between Russia and Ukraine anytime soon is highly unlikely […] as neither side is ready, willing or able to stop fighting.” She thinks that progress of the Ukrainian offensive this summer is “critical,” given the upcoming 2024 US election. She is concerned that American patience “starts to wear thin.”
“I do not watch television news, ever,” stated Fordham. This is the first rule of her political quotient, or PQ, a concept that she developed to test her own cognitive biases and to think more about counterfactuals. The CEOs that she meets still believe that the invasion of Taiwan by China will be “too economically disruptive,” Yet “president Xi says over and over again, that China and Taiwan will be reunited by 2027,” said Fordham.
On Ukraine, she believes that the critical question is not whether nuclear weapons will be used, a binary way of thinking, but “rather whether it escalates what are the different kinds of sub-threshold actions that might take place.”
This article was published for the Delano Finance newsletter, the weekly source for financial news in Luxembourg. Subscribe using this link.