Since the financial crisis in 2008 the global economy and financial markets have been on a diet of free steroids provided by central banks and politicians pushing the pedal via fiscal and monetary stimulus. The fiscal steroids have created ever larger government debts and will probably continue to grow beyond what is sustainable in some countries.
On a positive note we have underlying growth in global affluence, which is an an unstoppable force. Every year 120 million individuals join the global middle class. This is driven by Emerging Markets that grow 2-3 times faster than Developed Markets. The underlying need for better food, water, electricity, transportation, communication, energy, education and health is a firm hand under global economy.
However, global economic growth has been declining since 1960s from 6% to around 3% as population and productivity growth both decline. Global growth is probably 2.0-2.5% in 2030 unless a significant productivity boom comes.
There’s nothing wrong with 2% GDP growth, but many investors have been accustomed to 8% annual return, while the realistic forward return is more likely to be below 5% and achieved with 3% earnings growth and 2% dividend. Annual swings are likely to remain in the 15-20% interval, so it’s not going to be boring no matter what.
The traditional business and inventory cycle still applies, so from period to period growth and inflation will change. However, in a world with evermore data and analytics the efficiency of eco systems will likely reduce the magnitude of economic swings as end-to-end value chains reduce slack and inefficiency. Risks of financial mis-allocation of capital is the same.
In a investment world on those conditions Advice Capital Vision Fund and I focus on identifying companies and business clusters with unique structural growth and then invest in these when growth/profitability/valuation triangulation justifies it. The investment focus in Advice Capital Vision Fund is on identifying, holding and harvesting multibaggers based on the experience and principles the investment manager has learned. Good stewardship and ESG applies to the companies
