Global Macro Research - A New World Order | Insight Investment

Abdallah Nauphal

Abdallah has been CEO of Insight since July 2007, before which he was Chief Investment Officer, and then Deputy Chief Executive. He has overseen the transformation of Insight from a traditional investment manager to a specialist solutions provider across LDI, fixed income and absolute return. During this time, the scope and complexity of Insight’s business and governance structures has evolved significantly.

The global economy is undergoing a profound transformation, marked by unprecedented uncertainty and rapid change as a new world order emerges. This paper delves into the critical factors driving this reshaping and examines the potential implications for investors and policymakers.

• The multilateral order is unravelling: Pax Americana, which embodies the rule-based order and common ideals that united nations since WWII, is crumbling. Faced with the headwinds of deglobalization, demographic decline and the debt overhang, the system is no longer able to generate sufficient growth to sustain itself.

Figure 1: US real GDP is clearly trending lower, leaving Pax Americana unable to sustain itself

Source: Bloomberg and Insight as at 31 December 2024.

• Enhancing GDP per capita has become imperative: Without population growth, the only path to sustainable economic growth is to expand GDP per capita. However, productivity has been declining, and labor intensity faces significant challenges in an aging society.
• Artificial intelligence is a potential catalyst for revolutionary productivity gains: This exciting new technology may have the potential to restore growth in GDP per capita but will require vast amounts of resources. Given debt levels, the competition for resources will be a stark reality to face in future.
• Inflating away our problems carries risks but may become inevitable: Ailing economies could attempt to inflate the problems away and central banks may be forced to relax inflation targets as it becomes politically unpalatable to suppress wage growth.
• The path to interregnum and a new world order: Governments have been exhausting every available policy tool and are likely to resort to even more interventionist policies in the years ahead as they attempt to safeguard the system.
• Accept uncertainty and build resilience: As we review the investment landscape, it’s not just the components of the game that are being changed, but the very rules themselves that are being radically altered. This creates a very different level of uncertainty. Now is not the time for heroics; stay focused on your objectives and maintain optionality with liquid assets that can be swiftly redeployed if uncertainty declines and opportunities arise.