Neil Dwane, Global Strategist
Our Global Strategist Neil Dwane is in charge of articulating our house view on key areas of the global economy, assessing the key themes and topics that our investors need to consider when putting together their portfolios.
One of the big areas of focus for him over the last 12 months has been disruption, and how it is impacting financial markets.
In his presentation Neil covered three broad themes within disruption: political change and the rise of populism, productivity and technology, and the impact of robotics and artificial intelligence (AI).
On the political changes we have seen around the world, Neil explained that BREXIT and the election of Trump have definitely contributed to a global trend of rising populism. He believes this trend has the potential to derail the spread of globalisation, and should be seen as having the potential to creating significant volatility for investors. However, in the US Trump has so far failed to move forward any of his legislative agenda, and it remains to be seen what he will achieve as president.
In addition, some of the populist rise in Europe appears to have been broken, with positive results in the French and Dutch elections. This can be coupled with improving growth and a better handling of the refugee crisis. As a result, approval rates for the EURO are starting to improve, despite some concern over Italy, as can be seen in Figure 1.
Sources: Eurobarometer, AllianzGI Economics & Strategy as at April 2017.
On productivity Neil explained how this is the major driver for economic growth over the long run, and also contributes to higher wages, lower prices and higher living standards. However, over the last 20 years productivity growth in the west has been pretty stagnant, particularly in the UK. Neil explained some of the factors that have contributed to this, but finished on a more positive note, explaining that the rise of artificial intelligence and robotics has the potential to change this and improve productivity. The adoption of these technologies has already impacted some low-paid blue and white collar workers, but will
increasingly impact those in the professional middle classes, as shown by Figure 2.
Source: ONS, PWC Source: “The future of employment: how susceptible are jobs to computerisation?”, C.Frey and M. Osborne, Oxford University 2013.
Finally, Neil talked about the adoption of robotics and AI by companies, and how this could change financial markets and our lives. For example, he covered how the rise of self-driving cars and transport could lead to reduced emissions, accidents that are created by human drivers, and create a huge market in the medium term. In his opinion, the automotive industry is likely, to be the first of many that will undergo disruption created by AI, as is shown in Figure 3.
This is no recommendation or solicitation to buy or sell any particular security. A security mentioned as example above will not necessarily be comprised in the portfolio by the time this document is disclosed or at any other subsequent date. A performance of the strategy is not guaranteed and losses remain possible. Source: AllianzGI, as of March 2017.
From the perspective of an investor, those companies that have embraced AI have performed the best, with the so-called FANGs (Facebook, Amazon, Netflix, Google) and BATs (Baidu, Alibaba and Tencent) far outperforming the market over the last three years; FANGs delivering a return of 150%+, and the BATs returning 110%¹.
Despite this there remains some concern for investors, and data and cyber security are top priorities, as companies have to remain vigilant for threats in these areas. In addition, the increasing pace of automation could have a big impact on the labour force, and present significant challenges to policymakers with increased joblessness and inequality a potential result.
¹Thomson Reuters Datastream, AllianzGI Economics and Strategy, 10/08/2014 to 10/08/2017. Past performance is not a reliable indicator of future results.
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