Welcome to a new world

A new world where people miles apart from each other think in a similar way, often shaped and moulded by social media.

This desire for change or impatience with the status quo came to the forefront on a significant scale first in India in 2014 when Prime Minister Modi had a landslide victory despite having announced his candidature barely six months back. A decade ago, in absence of the Internet, it would have taken years to mould public opinion, but today with social networking platforms having billions of users, battles are won and lost in the digital world.

The same clamour for change, good governance was reverberated in Indonesia in late 2014 when Jokowi, a small time businessman with no national level political experience but a good track record as Jakarta`s governor, got voted to power. 2016 was another significant milestone in this experiment as Duterte, a well-intentioned but maverick, out-of-the-box political leader was voted as President in the Philippines, followed by Donald Trump`s unexpected victory in the U.S. Presidential elections.

This strong desire for change can be attributed to the feeling of secular decay in the middle class in the developed world, while their developing country peers express frustration at poor living standards under decades of smooth talking politicians. Political blame aside, the rapid growth in automation is also responsible for shifting the bargaining power away from workers to capital owners.

When economies and businesses face this set of new challenges, how can stock markets be left behind? Welcome to a world where 4 am tweets moves billions in market capitalisation while Twitter is still struggling to find the right revenue model.

We believed that this new crop of change leaders, though inexperienced, is well-intentioned and patriotic. However the path would be full of speed bumps. A good example is demonetisation of 500 & 1,000 rupees notes in India, a move to increase tax base and curb the menace of black money. In a working population of nearly 460 million people, only 17 million, or roughly 4 percent, declare an annual income of over INR150,000 (roughly USD2,250)1, a huge underreporting. As of 2013, India’s revenue from income tax as a share of GDP is 5.6%, one of the lowest in OECD. Though well-intentioned and completely radical, demonetisation has caused severe hardship and economic disruption as it sought to replace 86 percent of the India’s overall currency.

A similar sentiment is reflected in the state`s battle against drug menace in the Philippines where unorthodox ways of President Duterte seem to have impacted investor and business confidence in the strong and robust economy. Meanwhile in U.S., despite a strong economy and a tight labour market, incoming President’s rhetoric on job migration may actually do more harm than good by putting new investments on hold.

The biggest challenge for market participants like us is do we sell / buy these radical policies? We believe that we are living in an unprecedented world where job creation thanks to technology and deleveraging would be sub-par. Governments would take radical steps to protect jobs. Policy making would be unconventional as states strongly defend their interests and politicians try to keep support base loyal.

In this stormy and sometimes stressful environment, we would stay clear of the political rhetoric and be biased towards countries and companies which are unshackling the status quo, improving productivity and are at the forefront of innovation. The dislocations, as they have always been in the past, would hopefully provide us an opportunity to buy great companies at attractive valuations.