CFA Society Singapore
SINGAPORE (Dec 17): 2018 has been a year of disruption, though not just in terms of new technologies replacing traditional methods or innovative start-ups displacing outmoded business models.
At one level, the financial markets have seen a good amount of ups and downs. By the middle of the year, 2018 was shaping up to be the most volatile year for global markets since 2008. Company share prices have fluctuated in the wake of news flow that was not even strictly corporate; geopolitical-risk events have prompted investors to reassess the value of their holdings. On the other hand, corporate events have also turned political: Huawei Technologies’ expansion plans are apparently not sitting well with Western governments, and there seem to have been tit-for-tat arrests between China and Canada.
The arrest of Huawei chief financial officer Meng Wanzhou has wider implications. The world’s high-tech industry is inextricably connected in a global supply chain; any disruption at one link would have far-reaching repercussions. This was amply illustrated as the trade war between the US and China ratcheted up over the last six months; US companies were rushing to stock up or find an alternative for a myriad of Chinese products — from engine components to power tools and squid.
In the face of such events, The Edge Singapore decided that investors would benefit from a forum on riding the disruption, essentially a way of looking for investments that will hold their value amid market volatility. Unsurprisingly, what emerged was that investors ought to really focus on companies’ long-term value and fundamentals. “Because of business cycles, stock prices will fluctuate. But a company’s intrinsic value will remain fairly constant,” says Goh Tee Leng, fund manager at Heritage Global Capital Fund.
Yet, a common lament among company CEOs is that the market is only on the lookout for short-term gains, even though the most common measure of a company’s stock is the value of its future earnings potential. As such, any stockholder should really be making sure the company is operating with longer-term growth and sustainability in mind.
Indeed, short-termism does not just mean prioritising immediate profits. The gains are at the expense of longer-term benefits. In Davos early this year, the World Economic Forum warned that the short-term focus on generating growth has led to rising income and wealth inequality, and even climate change.
As WEF founder Klaus Schwab explains, in the post-war years, the countries that enjoyed the most economic equity “had a powerful and positive social contract”, which “paired growth with inclusiveness”. Today, however, with an imbalanced wealth distribution, that social contract is broken. “In the view of many, it has become an ‘anti-social contract’, under which business is the winner who takes it all.” Economic growth without restoring the social contract will not be sustainable.
What is needed, Schwab says, is the social equivalent of the quantitative easing that calmed the markets and helped economies recover after the global financial crisis, to help societies and their constituents struggling with the effects of disruption.
To that end, the WEF has launched an Inclusive Development Index as an alternative to GDP as a measure of national economic performance. The index takes into account inclusion, intergenerational equity and sustainability, in addition to growth and development. In the 2018 rankings, Norway was top. Singapore was unranked, because it did not have historical data on inclusion-related indicators.
Disruption may be constant, but its negative effects need not be.
This story appears in The Edge Singapore (Issue 861, week of Dec 17) which is on sale now. Subscribe here