The world is changing. And right now making all the right financial moves may seem like an impossible task, Citadel Chief Economist Maarten Ackerman noted during the Annual Client Presentation, hosted for the first time in Citadel’s history as an online webinar in October 2020.
The impact of COVID-19 is just part of a bigger puzzle which has been unfolding since 2016 when the road to globalisation, sparked in 1989 with the fall of the Berlin Wall, began to flounder in the face of Brexit, the rise of Donald Trump and increased global nationalism.
Globalisation as we know it is shifting and the true impacts of the fourth industrial revolution (4IR) are increasingly playing out, explained Ackerman. These shifts have notable repercussions for capitalism as a system with the trends pointing towards a more populist electorate, bigger government and increased socialist thinking. “I think we are approaching ‘peak capitalism’, so we are going to see more taxes and regulation around the world and more redistribution of wealth. It sounds almost as if we are talking about a South African situation, but this is a global issue,” he said.
This, said Ackerman, will be the continuing trend to watch. All these shifts will have profound impacts for the investment landscape, both immediately and into the future. As such, said Ackerman, Citadel’s stance is always to look to the future – with an eye currently to the next three to five years. “The world is changing, and this will impact how we do business, how we are going to invest, and which companies we are going to buy,” he said.
Outlining some of the companies already catching Citadel’s forward-thinking eye, Ackerman highlighted the example of US-based software firm Citrix Systems. “We actually owned this company going into the crisis and it’s done very well for us in our Global Greats portfolio. It’s all about working remotely,” he said of the 4IR-focused firm which specialises in providing digital workspace.
The other example cited was probably better known to Citadel clients: Google (or more specifically Alphabet Inc). Beyond the search engine with which most of us are more familiar, Google is already branching out into 4IR-aligned expansion across key areas such as autonomous vehicles and truck design, as well as mining data around health concerns such as dread diseases. “And, through Loon, they are working to provide internet connectivity to very remote areas in the world,” added Ackerman.
Both of these companies are well positioned for this new world, and both have been on the Citadel Asset Management radar for some time, hence their inclusion as part of the Citadel Global Greats portfolio.
Seeking out these investment gems is, however, a strategic process which requires more than just an in-depth understanding of company fundamentals, but also a deep appreciation for the impact of global economics and geo-political developments.
As Citadel’s Chief Investment Officer, George Herman, explained: “In the long term, one of the tenets of our investment process and thinking is that economic conditions drive the success or failure of companies, and the earnings of companies. That is multiplied by the risk appetite of the investment community to arrive at the current market level. It’s this risk appetite that is driven by the old stories of greed and fear – which change very rapidly between a risk-on and a risk-off environment. And so we do get a feedback loop where the market conditions sometimes impact on the economic conditions and that is, in essence, what central banks are trying to drive currently [by rolling out synchronised global stimulus plans].”
Herman added: “We firmly believe that macroeconomic conditions, in the long term, drive the earnings picture and hence where the investment markets are.”
This is exactly why it is critical to formulate intelligence scenarios for the global economy, taking into account factors such as global growth, rising US unemployment and the contraction of key global markets. Equally important is a keen reading of the South African economy, which is staring down a slow recovery post COVID-19 in what is already a weak environment with a steadily increasing unemployment rate, rising government expenditure and the deepening concerns around debt.
In the face of a bleak local picture, and with the global scenario under pressure, the big question for investors currently, said Herman, circling back to the event’s ‘all the right moves’ chess theme, is how do you protect your king? How do you protect your castle?
Well, you make sure your fortress is secure. And that’s where Citadel comes in with insights and data-driven projections, long-term planning, tried-and-trusted strategies and expert know-how to protect you – and your wealth – well into the future.