Low interest rates, political risk new normal for investors

Investors are being told political uncertainty and demographic change are now two of the most important risks to consider in their asset allocation decisions.

Friday, September 9th 2016, 6:00AM

by Susan Edmunds

Economist Shamubeel Eaqub said people needed to realise that the world was changing. “This time is different and they need to plan for their portfolios accordingly,” he said.

“We have never lived in this kind of environment before, when the economic conditions have been so confusing, new and different. It is different this time. It is only in this world that Trump could be a viable candidate for the presidency of the United States.”

Investors now needed to think seriously about how they would manage political, geopolitical and economic risk to their investments, he said.

It was clear that disenfranchised, lower-income people in countries such as Britain and the United States were starting to take a stand – and that was something that could affect New Zealand as well.

“Those of us with good jobs, reasonable incomes and reasonable prospects did not think people would vote in favour of something [Brexit] that clearly would not be good in the long term. But people did,” he said.

“The ravages of globalisation have been significant and they have been so significant that it is now the majority that is missing out. The politics that stems from this is one of division. The divided society is demanding a different way of doing things.”

Eaqub said that could lead to a more protectionist stance in many countries around the world, which could affect globalization and the ability of New Zealand companies to perform.

But he said every asset class was expensive so there was no right way to manage portfolios. However, anyone hanging out for an increase in interest rates could be sorely disappointed.

With large levels of debt globally, rates were unlikely to rise quickly, he said. The recent period of high interest rates, from the 1980s through to last decade, could turn out to be the aberration rather than the norm.

“The world’s history is longer than the last 20 years. The kinds of economic forces that are in play are far more Victorian than what we were exposed to and dealt with in the 1980s and 1990s,” he said.

“I believe we are now looking at a period of economic, political and geopolitical uncertainty on a scale we haven’t seen since before the Great Depression.”

Tags: interest rates