Jim O'Neill, former Commercial Secretary of the British Treasury, former chairman of Goldman Sachs Asset Management, and senior advisor to Chatham House, was hosted by Naji Nehme to discuss the future of the European economy in light of the geopolitical change. Below are the main discussion points.
- Before the Russian-Ukrainian development, a massive recovery in markets started in 2022, but many issues remained uncertain which pose challenges for navigating markets. The Russian invasion adds to an already complex investment market, given the valuations.
- Like most of the Gulf, Brazil and Russia are too dependent on commodities, but they have very large populations. They ride the upswing in commodity cycles reasonably well, but are very vulnerable when commodity prices drop.
- The Chinese now know the scale of sanctions that the west is prepared to undertake. If China’s foreign exchange reserves were frozen, the consequences for China would be devastating. The only reason for friendship between China and Russia is their equal dislike for American world domination.
- Biden had a very difficult first year with the Afghanistan debacle and domestic fiscal policy. He appears to have navigated the US position on Ukraine and Russia quite well so far. He rebuilt the alliance between Washington and Europe, which was quite broken under Donald Trump.
- We might soon see a more active German economy and security policy, which is a stronger long-term basis for a sound currency, making the euro resemble the US dollar and opening the door for a credible pan-European bond.
- The reaction of markets to the geopolitical turmoil remained reasonably normal. Following a massive unexpected shock, markets move dramatically, but there was no major change other than isolated market dislocations.
- Inflation should drop in the second half of this year. If policymakers behave irrationally, a recession might ensue in the next nine to 18 months. However, central bankers no longer live in the same ideological box that they once did.
- In managing their portfolios amid COVID-19 and the Russian-Ukrainian crisis investors should firstly respect valuations, although they shouldn't be the sole basis of investing, and secondly, diversify to preserve and grow long-term wealth.
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