![Six takeaways from our London Investment Forum](/-/media/allianzgi/eu/regional-content/update-magazin/iii-2018/2304x1296-sechs-erkenntnisse.jpg?rev=-1)
Summary
This September, our experts gathered to debate the state of the global economy, and discuss how investors should approach the markets. Our consensus? The global economy is still doing fairly well, but politics and trade will drive markets in increasingly unexpected ways. Actively managing risks and opportunities – including diversifying among regions, asset classes and sectors – can help.
![]() |
Update Magazine III/2018 |
1 Brexit won’t be resolved in a single decision – and not all sectors will be losers
Economic growth in the UK has slowed in recent years,
and the Brexit process has already undermined real
GDP. Whatever happens in early 2019, there will be little
immediate clarity; the particulars of this divorce will evolve
over months and years. What is clear is that not all sectors
will be affected by Brexit in the same way. For example,
in the event of a “hard” Brexit, a weaker British pound
will likely help larger UK exporters – as will their more
diversified exposure.
The UK will also need to make up a large trade gap if it
loses access to European Union markets in a hard-Brexit
outcome. The EU is the UK’s biggest trading partner, but
the EU may be less exposed to losing this relationship
than the UK is. The same holds true for the UK’s other
major partners, including China, the US and the British
Commonwealth. Investors should look for UK companies
that are better prepared for Brexit or do significant
business beyond the EU – more likely large corporations
than smaller and mid-sized businesses.
2 Trade wars are bad for markets, but not necessarily for active investors
US President Donald Trump continues to change the terms
of global trade, and while this hasn’t yet derailed the US
markets, some segments are struggling. Soybeans, for
instance, represent more than half of US agriculture exports
to China, and farmers are suffering from prices that have
fallen by more than 20% since March, according to
Bloomberg. But companies that lie higher up the supply
chain may be able to pass on higher costs to consumers.
Finding those firms could provide an opportunity for active
investors.
Investors should look for buying opportunities from the
volatility that ensues from the US forging new bilateral
agreements with Mexico, Canada and Germany, and other
major trading partners. China is squarely in President Trump’s
crosshairs, but it may be inclined to resolve its differences
with the US, particularly given China’s desire to open up its
economy to foreign investors. Still, if there is a slowdown in
emerging markets – or if China takes a more retaliatory
stance – the US will likely be the safest place for investors.
The Federal Reserve will watch how trade affects growth and
inflation as it continues tightening its monetary policy. This is
a careful balancing act. The Fed wants to raise rates to keep
inflation in check, and create room to manoeuvre in the
future. Yet the Fed could make the mistake of raising rates too
much or too quickly, slowing down growth and increasing
volatility.
Key highlights
- Uncertainty and volatility are hallmarks of the global economic outlook; this is an opportunity for active managers to pick out the winners from the losers.
- Brexit and President Trump’s trade policies are adding to a climate of uncertainty, though the winners will become apparent in the longer term.
- Inequality is a genuine threat to economic and social stability, but there are many options open to companies willing to redress imbalances.
- Disruption through cyberattacks can damage returns, but engaging with companies can help assess their ability to handle cyber risks.
3 Economic inequality is disruptive, but focusing on ESG is advantageous
Inequality has become an ever-growing part of political
conversations across the US and Europe, where disparities
in wealth continue to grow. This is a warning sign that
investors must heed – not least because inequality has the
potential to cause disruption, instability, environmental
degradation and a host of social ills.
There are two primary ways to address this problem from
an investment perspective:
4 It’s time for companies to confront cyber risk head-on
Cyberattacks on major companies have gone from being
an annoyance to being a critical issue. We are now in an
environment of broad, unpredictable assaults across all
sectors, geographies and business sizes. Attacks on major
companies have stopped production and prevented
critical products from being delivered. For investors, this can
mean falling share prices stemming from remediation
expenditures or damaged reputations.
The good news is that many companies are making a
surprising amount of headway in combating cyber
disruption, but some are much better equipped than others
to handle these problems. The challenge is how to identify
these companies – and active engagement with
management teams can show which firms are better
prepared to deal with cyber risk.
5 There’s a reason infrastructure investing has quadrupled since 2008
Investors are increasingly looking to infrastructure
investments as a way to balance their portfolios. The total
amount of infrastructure assets under management has
more than quadrupled in the last 10 years, according to
Prequin.
This alternative asset class is attractive to investors because
of its healthy risk-return profile. It provides stable long-term
return potential, improved diversification and the ability to
help guard against inflation. And it is an area primed to
receive significant government support – particularly the
field of green infrastructure. According to the International
Finance Corporation, demand for urban water
infrastructure investments could exceed USD 13 trillion
through 2030, and the wind and solar power market could
need USD 6 trillion in investments through 2040.
Like any investment, there are risks associated with
infrastructure investing. Yet we believe these can be
addressed with careful oversight and engagement with
the managing companies involved with infrastructure
projects.
6 Combat procyclicality with long-term, active investing
While the global economy is doing relatively well at the
moment, the future appears less certain and more volatile.
Returns are likely to be more muted over the next five to
10 years, so investors will need to work their money harder –
and be less procyclical. Investors shouldn’t make the mistake
of pursuing only strategies that performed well in the past,
ignoring those that may hold the greatest potential in the
future. An active, engaged approach to investing can help
generate value and minimise risks to portfolios.
Investing involves risk. The statements contained herein may include statements of future
expectations and other forward-looking statements that are based on management‘s current
views and assumptions and involve known and unknown risks and uncertainties that could
cause actual results, performance or events to differ materially from those expressed or implied
in such statements. We assume no obligation to update any forward-looking statement. The
value of an investment and the income from it may fall as well as rise and investors may not get
back the full amount invested. There is no guarantee that the strategy will succeed and losses
cannot be ruled out. Investors may not get back the full amount invested.
The volatility of fund unit prices may be increased or even strongly increased. Past
performance is not a reliable indicator of future results. If the currency in which the past
performance is displayed differs from the currency of the country in which the investor resides,
then the investor should be aware that due to the exchange rate fluctuations the performance
shown may be higher or lower if converted into the investor’s local currency.
This is for information only and not to be construed as a solicitation or an invitation to make an
offer, to conclude a contract, or to buy or sell any securities. The products or securities described
herein may not be available for sale in all jurisdictions or to certain categories of investors.
This is for distribution only as permitted by applicable law and in particular not available to
residents and/or nationals of the USA. The investment opportunities described herein do not
take into account the specific investment objectives, financial situation, knowledge, experience
or particular needs of any particular person and are not guaranteed. The views and opinions
expressed herein, which are subject to change without notice, are those of the issuer and/or its
affiliated companies at the time of publication. The data used is derived from various sources,
and assumed to be correct and reliable, but it has not been independently verified; its accuracy
or completeness is not guaranteed and no liability is assumed for any direct or consequential
losses arising from its use, unless caused by gross negligence or willful misconduct. The
conditions of any underlying offer or contract that may have been, or will be, made or
concluded, shall prevail.
Contact the issuer electronically or via mail at the address indicated below for a free copy of
the sales prospectus, the incorporation documents, the latest annual and semi-annual financial
reports and the key investor information document in English. Please read these documents –
which are solely binding – carefully before investing.
For investors in Europe (excluding Switzerland): This is a marketing communication issued
by Allianz Global Investors GmbH, www.allianzgi.com, an investment company with limited
liability, incorporated in Germany, with its registered office at Bockenheimer Landstrasse 42–44,
60323 Frankfurt/M, registered with the local court Frankfurt/M under HRB 9340, authorised by
Bundesanstalt für Finanzdienstleistungsaufsicht (www.bafin.de). Allianz Global Investors GmbH
has established branches in the United Kingdom, France, Italy, Spain, Luxembourg and the
Netherlands. Contact details and information on the local regulation are available here
(www.allianzgi.com/Info).
For investors in Switzerland: This is a marketing communication issued by Allianz Global Investors
(Schweiz) AG, a 100% subsidiary of Allianz Global Investors GmbH, licensed by FINMA
(www.finma.ch) for distribution and by OAKBV (Oberaufsichtskommission berufliche Vorsorge)
for asset management related to occupational pensions.. Details about the extent of the local
regulation are available from us on request.
This report does not satisfy all legal requirements on the guarantee of impartiality in investment
recommendations and investment strategy recommendations and is not subject to any trade
restrictions prior to the publication of such recommendations. The duplication, publication, or
transmission of the contents, irrespective of the form, is not permitted.
![In the long run: Infrastructure assets – benefits for societies and stable returns for investors](/-/media/allianzgi/eu/regional-content/update-magazin/iii-2018/2304x1296-investion-in-infrastruktur.jpg?rev=-1)
Summary
Infrastructure is the prerequisite for social well-being and economic growth. However, in many countries not enough investments are made in infrastructure. This investment gap has widened as governments are financially strained from the sovereign debt crisis and from ever growing retirement and healthcare obligations. As a result, there will be a growing number of infrastructure projects that match our profile as an investor who is investing in assets that provide essential services to the public, and are supported by regulated or contracted revenues or a strong market position.