To help defend against the effects of changeable social climates, investors should diversify across a global spectrum, Russell Investments head of Asia-Pacific investment strategy Graham Harman says.
Harman explains that society’s shifting values since the global financial crisis have steered political leaders in new directions, moving markets along with them; however, with inflationary figures now returning to target in the US and elsewhere, there is perhaps a view that a less settled market environment is returning to the way it was prior to the GFC.
As such, there are investment lessons that can be learned from the events of the last decade and, indeed, the US capitalist model overall, Harman says.
“Investors may want to think hard about the sustainability of the United States miracle,” he says. “It’s great that they’ve had a free-wheeling capitalist growth dynamic that’s been really good for markets, but at some point, this creates an underclass of people who can’t afford an iPhone or a Netflix subscription, or whatever it may be, so the whole model falls over.”
Harman says that while America’s dynamism has been strong for capitalist societies for a long time, the risks have also been high. This should give pause to investors who would be best suited to allocate across a range of different markets, such as China, India, the UK or New Zealand.
“Investors may not want to hang their hat on places that are the most divided, because history tells us they can be extremely bad for markets,” Harman says. “The other thing is the sheer diversity of experience around the world means we have a lot of controlled experiments, and as investors we can plot market implications off the back of these political and social trends.
“I’d be looking to diversify across political regimes and would definitely be investing in secular uptrend markets like China and downtrend markets like the UK, because then you’re diversifying across both.”
Harman suggests that this type of mix-and-match investing can be a positive for those faced with changeable social climates or political leaders looking to embrace the populist view.
“Investments across a broad political spectrum stabilise things for investors in a positive way,” he says. “I wouldn’t be too judgmental about this. I’d really utilise the diversification of opportunities around the world.”
Graham Harman will speak at the upcoming Fund Executives Association Ltd (FEAL) Conference, August 1-2 at the Hilton Hotel, Sydney.