An ageing population and rising government debt levels have seen the global economy echo economic movements in Japan, according to Hyperion chief investment officer Mark Arnold.
“We think that the world has effectively been turning Japanese over the last 13 years, since the GFC, because you’ve had that accumulation of debt, over the last 50 or 60 years in society,” Mr Arnold commented on a webinar hosted by the ORAH Fund.
“Generally, you’ve had rising wealth inequality and there’s been a gradual hollowing out of the middle class particularly in developed markets. And I think the world is starting to bang up against natural resource constraints as well and disruptions including climate change.”
Technology advancements, while reducing product costs, are also expected to shake up human capital markets more and more, while energy markets are also tipped to be disrupted.
“So that’s going to be deflationary,” Mr Arnold said.
“We think governments around the world have been adopting key elements of what the Japanese government’s been doing for over 20 years now.”
Global central banks have followed their Japanese counterpart, adopting low-interest rates and ramping up money printing, while governments have taken on more debt in an effort to buffet the COVID crisis.
The Japanese cash rate has been as low as -0.1 per cent in 2016, having averaged 2.43 per cent from 1972 until 2020.
Meanwhile, investors should be adapting by looking towards businesses that are disruptors and strong competitors in their industries.
“You really need to invest in businesses that can take market share because if the economic pie is not growing, taking market share is really the only way for a business to grow its revenues and profit,” Mr Arnold said.
“When you’re thinking about investing, you should really think about that sort of framework and focus your capital on businesses that can grow in a low-growth or no-growth environment.
“Also, innovation is really the key driver of organic growth over long periods of time, so you really need to look at investing in innovative businesses.”
