The instability has even spilt over to the international economy, which is scrambling to adjust to these long-term fundamental developments while facing its own set of problems. 

Inflation still remains stubbornly high. In response, central banks are tightening monetary policies and increasing interest rates at a rate not seen since the 1970s. The recent bank failures and crypto-currency fallouts are all but adding to the uncertainty.

The twin threats of economic turbulence and geopolitical tensions have made it more complicated for investors. But this is the new reality - the last 20 years of low interest rates and little inflation were the exception to economic norm. They were the results of ultra loose monetary policies and an unprecedented accessibility to goods and services.

All that has now changed. Players in the global economy will need to remain mindful of these geopolitical implications, staying nimble as they contend with an unpredictable, divided world. In these uncertain times, adaptability is key.

NAVIGATING A LESS CONNECTED WORLD

For decades, international trade has been the engine of global economic growth. But momentum has hit the brakes in the last decade. According to the World Trade Organization (WTO), trade growth is expected to grow by just 1.7 per cent in 2023 - a sharp fall from the average of 7.7 per cent per year between 1992 and 2007.

Increasing protectionism is the main reason for this slowdown. In fact, in a 2022 Trade Monitoring Report, WTO noted that the economic uncertainty and Ukraine conflict has led to even more trade restrictions. For the first time since the monitoring exercise began in 2009, the number of export restrictions have outpaced import restrictions.

This shows one thing: countries are increasingly turning inwards as they put their own self-interests first.

It is a worrying sign. While globalisation promotes a win-win situation where countries produce goods and services based on their comparative advantage, deglobalisation is the opposite. It compels countries to adopt a win-lose mentality, as they try to seek the upper hand. This may even lead to them entering industries where they lack a competitive edge, just to be assured of getting the desired good and services - even if it comes at a higher cost. 

Such protectionist policies, along with a friendshoring approach which sees allied countries banding together for trade, will be a less efficient use of global resources. This will only result in lower productivity and growth.

HIGHER FOR LONGER

On the economic side of things, the era of cheap money has given way to stringent monetary policies as inflation arrived, borne by a surging, post-pandemic demand for goods. To quash it, central banks are taking tough action by rapidly increasing interest rates, with borrowing costs now at its highest level in decades.

Even a banking crisis, which saw the collapse of Silicon Valley Bank and a last-ditch rescue of Credit Suisse, has not stopped interest rates from rising. My belief is that we are entering an extended period of higher interest rates.

When hyperinflation gripped the markets in the 1970s, the US Federal Reserve sharply increased interest rates in a bid to reduce purchasing power. What followed was the largest decline in US economic activity since the Great Depression, as the country entered a recession. While I do not expect such an outcome this time as economies are better prepared and productivity is much higher, we still need to monitor the situation closely.

With many central banks today adopting a similar approach, we cannot rule out the risks of higher unemployment, lower economic growth, and even bond defaults.

BALANCING RISK AND REWARD

As rates remain high and inflation continues to rise, investors will be looking for higher real returns as they seek a buffer against the volatility. This can be achieved by increasing risk appetite, investing in new assets classes such as private markets for digital currencies. 

While it is easy to be aggressive in a bull market, these uncertain times mean that it is imperative that investors observe the principles of investing. Set reasonable target returns and carefully consider the risks of what you are investing in. While investing should always be done with a long-term view, the current unpredictability means that one should also be prepared to adjust short-term if necessary.

One can consider looking at commodities as an asset class, with the Ukraine conflict causing prices in the market to rise sharply as countries compete for these resources. Opec’s decision to cut the production of oil in April has further raised oil prices.

Geography can also be another factor to consider. Asia for instance, is an area worth a look. While global growth is expected to face serious headwinds, it is expected to cope much better compared to other regions.

The two most populous countries in the world - China and India - have continued to grow despite the upheavals. India’s domestic-oriented economy for instance, is better shielded from external trade shocks. This insulated nature is why the World Bank has predicted its economy to grow 6.9 per cent this year.

China on the other hand, has an effective, vertically integrated economy that captures virtually the entire supply chain. A dual circulation strategy also sees it tapping on a huge domestic market, which helps to negates the impact of slowing international trade. Indeed, on the basis of Purchasing Price Parity, it is already the world’s largest economy.

One should also not forget about ASEAN - a vibrant economic bloc with a largely young and industrious population of 600 million that is integral to Asia. In fact, it is one of the world’s fastest growing regions, with an International Monetary Fund report forecasting it to improve by 4.6 per cent this year. With Asia expected to boast three of the five largest economies in the world by 2050, it is on the ascendency. 

PROVIDING A PLATFORM TO SUCCEED

Where does Maybank come in amidst these disruptions and opportunities? Our footprint in ASEAN, China and India gives us a firm foundation to help our clients succeed, be it in business or investments. Our 12 strategic programmes have bolstered our capabilities in the likes of wealth management and SME banking.

But beyond the programmes, it is our mantra that will always take precedence: customers come first. In a tumultuous world where it is seemingly every man for himself, such customer-centricity will be even more pertinent.

This article was written by Alvin Lee, Maybank Head of Group Wealth Management & Community Financial Services.