by Jonathan Wilmot, Credit Suisse’s Head of Macro Investments, Asset Management, looks at three past crises of capitalism – in the 1890s, the 1930s and the most recent one in 2007 – and shows that previous pre-crisis financial and economic conditions are not apparent today. His conclusion: Policy matters. Is the world going back into crisis? “It comes down to policy and whether policy rises to the challenges we face right now,” Wilmot told participants in the opening session on April 6 at the Credit Suisse 2016 Asian Investment Conference in Hong Kong. “After big crises, the system remains fragile for a very long period of time,” he explained. The “deep panic” in the markets at the beginning of this year could signal a buy opportunity, Wilmot said. “In history, it has always been right to be contrarian in a panic except when you are at the beginning of a bubble or over-leveraged period.” Are we in such a period? Going by a longer-term view of equity market performance and global industrial production levels, the global economy is not overheating, he observed. “The preconditions that had been in place in Western economies prior to previous global recessions are not there.” That suggests that the focus of concern should be on emerging economies such as China and on developments in commodities including oil.
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Jonathan Wilmot, Credit Suisse’s Head of Macro Investments, Asset Management, looks at three past crises of capitalism – in the 1890s, the 1930s and the most recent one in 2007 – and shows that previous pre-crisis financial and economic conditions are not apparent today. His conclusion: Policy matters.
Is the world going back into crisis? “It comes down to policy and whether policy rises to the challenges we face right now,” Wilmot told participants in the opening session on April 6 at the Credit Suisse 2016 Asian Investment Conference in Hong Kong. “After big crises, the system remains fragile for a very long period of time,” he explained.
The “deep panic” in the markets at the beginning of this year could signal a buy opportunity, Wilmot said. “In history, it has always been right to be contrarian in a panic except when you are at the beginning of a bubble or over-leveraged period.”
Are we in such a period? Going by a longer-term view of equity market performance and global industrial production levels, the global economy is not overheating, he observed. “The preconditions that had been in place in Western economies prior to previous global recessions are not there.”
That suggests that the focus of concern should be on emerging economies such as China and on developments in commodities including oil. In China, the issue is whether it can implement fiscal policy measures and push through necessary structural reforms at the same time. Yet this is not unlike the challenge facing other economies. “China is just a template for what needs to happen in Europe and other countries,” Wilmot explained.
“In the aftermath of these great crises, policy mistakes really matter,” he said, recalling that the monetary policy tightening in 1937, which was intended to stave off a return to crisis, ended up making matters worse. “One of the lessons of the 1930s for how we came out of the crisis is that the public sector stepped in when the private sector wouldn’t.”
The world, he remarked, is entering an unsettling period during which whole sectors such as finance and transport will be comprehensively changed by technological advances. Major demographic shifts that are playing out such as the retirement of baby boomers will pose significant challenges to business and government leaders. “If I look at the world going forward, there is the possibility of massive disruption to major parts of the economy and industry that will have a major effect on equities.” With bond yields possibly remaining low for some time and with its bias in favor of passive diversification, the fund management industry will have to review its strategies going forward, said Wilmot.
For more, please visit the Credit Suisse AIC website.
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