Patrick ReeveCurrent Global Trends and their Investment Implications

Patrick Reeve Current global trends and their investment implications

• Population DensityPeople per square km, 2015

• Africa’s population growing at 2.6% pa v. GDP growth of 1.6% pa

• World ageing faster – Actual and projected time taken for population over 65 years old to move from 7% to 21%:

• France – 157 years• UK – 100 years• US – 89 years• Brazil – 38 years• China – 34 years

2

Population

0 50 100 150

Oceania

North America

Latin America

Europe

Africa

World

Asia

Source: FT

• “Fundamental political ‘trilemma’ of the world economy: We cannot simultaneously pursue democracy, national determination and economic globalisation” [Dani Rodick - Harvard]

• Importance of trade in Global Growth

3

Globalisation (1)

0

500

1000

1500

2000

2500

3000

3500

4000

450019

50

1952

1954

1956

1958

1960

1962

1964

1966

1968

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

GDP

Exports

Source: FT

• World trade stagnating:

• Globalisation has reached a plateau – “Important segments of the Western public no longer believes increased trade benefits them” [Martin Wolf – FT]

• Growth in US real incomes (% by year)

4

Globalisation (2)

0

5000

10000

15000

20000

25000

30000

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

World trade in goods and services

Trade in commercial services

Merchandise trade

-1

0

1

2

3

1917-1948 1948-1972 1972-2013

Top 10%

Average

Bottom 10%

Source: FT

• % of households with flat or falling real market income, 2005 to 2012/14

• Brexit vote - 73% 18-24 year olds – Remain

- 40% over 65 year olds – Remain

5

Globalisation (3)

0 20 40 60 80 100

Average of 25 countries

Sweden

France

Netherlands

UK

US

Italy

Source: FT

6

Globalisation (4)

• Vicious circle of low growth, stagnating incomes, social dissatisfaction, political fragmentation, increased protectionism

• Paradox of low growth leading to measures that result in even lower growth

• “An end to facile optimism about the future” [Martin Wolf -FT]

• The ages of innovation

Growth in the US total factor productivity (% per year)

• US productivity in 2016 falls for first time in 30 years

• “Some Inventions are more important than others” [Robert Gordon – The Rise and Fall of American Growth]

7

Productivity (1)

0

0.5

1

1.5

2

1900-20 1920-70 1970-94 1994-04 2004-14

Source: FT

• Average time spent per working day in UK

• 2016 “Digital detox” survey by Ofcom:

• 33% of 16-24 year olds “more focused and productive”

• 24% of 16-24 year olds “missing out on things”

• 5% of 16-24 year olds “lost without it”8

Productivity (2)

Media/Communications 8 hrs 45 mins

Sleep

8 hrs 18 mins

No media

6 hrs 56 mins

• Global debt now at $152 trillion – twice size of Global economy [Source – IMF]

• Resulting in excess under-performing assets and danger of inflation

• Oil production

Barrels a day (m)

• “Sooner of later everyone sits down to a banquet of consequences” [RL Stevenson]

Productivity (3)

0

2

4

6

8

10

12

14

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

Russia

Saudi Arabia

US

Source: FT

UK Prospects

-7

-6

-5

-4

-3

-2

-1

0

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

184790.26

Oct 11 201629.27

1 2

3

5

4

6

1. 1920s – UK rejoins gold standard2. 1931 – UK leaves the gold standard3. 1949 – Attlee government devalues4. 1967 – Harold Wilson’s ‘Pound in your pocket’ devaluation5. 1992 – Black Wednesday, UK leaves ERM6. 2008 – Financial crisis

• Structural long termcurrent account deficit

UK current account balance(% of GDP, sum over previous four quarters)

• Sterling’s 168-year low £ effective exchange rate

• UK 2nd biggest exporter of commercial services at 7.3% global share

• “Britain’s service sector will see its exports drop by 60% after leaving the European single market” [National Institute of Economic and Social Research]

Source: FT

• Annual SME survey – since 2013 - 556 companies with more than 5 employees (1,014 in total)

• Fundamental optimism of SMEs • 73% forecasting growth• 57% increase in productivity• 51% increase in staffing

11

Albion Growth Report

Source: The Albion Growth Report

• Shortage of skilled staff – biggest single barrier to growth

• CEOs under 35

• Most worried about Brexit

• Most worried about Global competition

• Most likely to enter into new markets

• 59% improvement in productivity due to:

- Improved skills

- Work ethic

• Most likely to consider equity finance from angels, private equity or venture capital (43%)

12

Albion Growth Report

Source: The Albion Growth Report

• Overview – period of rapid global transformation

• Sharp demographic changes - World getting smaller- Changes to the way we live

• Low global growth - Declining productivity- Pressures on trade

• UK - Exposed – as a trading nation- Currency decline- Inflation threat

Strategic Investment Influences (1)

Albion’s challenge:

• Achieving balance and stability in a changing world

• Backing change and growth where result in value

• Bias towards positive social outcomes

• Finding optimism

Strategic Investment Influences (2)