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Emerging markets offer clue for investors in 2017
December 31/January 1 2017 | Financial Times | by Gillian Tett.

Now (people = politicians = capriciousness/alternatively, unpredictable waves of populism) are shaping events, not established party platforms or policy programmes....the pricing of political uncertainty has moved from being an emerging market phenomenon to an emerged market issue....Is there any way for investors to adapt to this new world? ....(1) Start by abandoning the idea that asset values can be predicted by using neat economic models alone. ...investors urgently need to think about the difference between "risk" (i.e. events that can be predicted with a certain probability) and "uncertainty" (i.e. unknown future shocks). Until now, investors in developed markets have tended to focus primarily on risks and assume that these can be priced (and hedged against). But 2017 is likely to produce uncertainty. That cannot be easily priced or hedge--and investors should recognize this. (2) Investor should also embrace "optionality": the only way to prepare for a world of uncertainty is to stay as flexible and diversified as possible. Now is not the time for investors to put all their eggs in one basket, or bet on just one asset class. Nor is it time for businesses to be locked into rigid business plans: political and geopolitical upheaval could strike almost anywhere. (3) If 2017 does deliver more risk and uncertainty, expect financial markets to be "skittish" about "news" of all types, and not just economic....Bad news for those who despise market volatility (expectation: we're in for volatility like we've never seen before)....Uncertainty can deliver huge opportunity alongside risks..."good" surprises....Surviving 2017 in the developed economies requires that investors use tools beyond those found in the realm of economics: psychology, sociology and political science. Also, talk to successful emerging market investors to find out how they practice their craft.
concentration_risk  Gillian_Tett  emerging_markets  political_risk  unpredictability  Brexit  investors  Donald_Trump  uncertainty  risks  optionality  geopolitics  financial_markets  politicians  volatility  tools  economics  psychology  sociology  political_science  FT  institutions  rule_of_law  Gary_Cohn  populism  indicators  human_factor  assets  asset_values  asset_classes  diversification  dislocations  bad_news 
january 2017 by jerryking
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