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A Look Ahead to the Future of Finance

01 Jan 2022

Each month, Mercer brings together in-house experts, employee advocates and external thought leaders for an online discussion of the most pressing issues. The program is called #MercerChats and takes place entirely on Twitter, where individuals around the world engage with Mercer’s intellectual capital and other leading thought leadership to share insights and discuss the best solutions to help organizations thrive. Below is a summary of our December 2021 tweet chat, highlighting some of the key themes discussed and insights shared.

If you listen closely, you can hear the sound of tea leaves swirling around the bottom of cups in investment firms and CFO offices around the world. That’s because it’s that time of year again: time to look ahead and make sense of what’s going to happen in global financial markets in 2022. From asset allocation to investment strategies, the decisions made today can impact the fortunes of multinational organizations and the individual investors alike, so having a roadmap is essential to plotting a path to success.

But for those of us who can’t see the future, it can be difficult to know what’s just around the bend. Will the post-pandemic economic recovery continue, will inflation stabilize, and will the locus of economic power continue to shift to new markets?

In the interest of learning more about what to expect in ever evolving global financial markets, we convened some of the world’s leading voices and though leaders on finance, fin tech and the emerging market trends that could come to define the year ahead. Below are some of the top insights from that conversation.
 

Changing of the guard

If change is a constant, than 2022 will be no exception to the rule. As global markets respond and rebound from the shock of COVID-19, they’re also continuing the broader change trajectories from before the pandemic. From the realignment of monetary policy and global economic superpowers to the transformative impact of new tech, the world was on track for radical change even before the pandemic kicked things into hyper drive.

This was widely covered during our conversation, with many participants observing that we’re at a pivotal moment of change across many facets of the global economy. For starters, Ian Horne noted that, in many respects, we’re now on the other side of the 4th Industrial Revolution and technology will now continually disrupt and reset the economic order. The waves of change have broken up into a frothing sea of constant innovation, and only those who can swim in this new, dynamic landscape will survive.

At the same time, we’re in the midst of a historical global recalibration as China looks to eclipse the US in the international pecking order. Though long heralded as a foregone conclusion, as Patricia Schouker pointed out, we’re now seeing the complexities of this transition, and investors need to actively manage their interests in a Chinese economy that Helene Li noted is trying to balance a global economic downturn with the need to maintain growth.

The digital economy will continue to grow and offers ample opportunity for disruption and rapid scaling. Moreover, if we are truly in the 4th Industrial Revolution, tech will be at the heart of most economic success stories.

Ian Horne

China’s growth & development since 1980’s always a hot topic. Its growth is slowing & combined w/high inflation, worse fiscal deficits & greater geo-political volatility – including the impact on commodity prices, which are particularly important to #Australia’s economy.

Patricia Schouker

It’s a balancing act for China - steadying the slowdown while maintaining mid term growth

Helene Li
 

Position for Transition

For all the uncertainty about the future of the economy, one thing is clear: sustainability will be a critical part of the agenda. Cara Williams shared during our chat that the power and importance of impact investing has never been more apparent as it is in the wake of the COVID-19 pandemic, with investors and organizations committed to ensuring that their actions are resilient and future proofed.

The biggest change here is realization of what “resiliency” means. Whereas the sustainability conversation was once focused entirely on climate change and environmental decay – still an important focal point, as Martyn James pointed out – it has now expanded to cover a broad array of issues that can impact an investor’s ability to maintain sustainable growth. From the awareness of the societal impact of investor actions to the push for greater diversity among investment management teams, the entire industry is reconsidering how they can refit and reset for a more sustainable future. Investors are making these changes not out of altruistic sentiment or in pursuit of good PR. Instead, as John Lloyd observed, they’re doing it in self-interest, because the risk is not in the future, it’s now.

One of the greatest outcomes of Covid has been the attention and focus placed onto ESG and in turn impact investing.

Cara Williams

Coming out of COP26, it is clear that governments, businesses and individuals will need to invest trillions of dollars in tackling climate change.

Martyn James

Awareness that every company has natural capital risks that impact their supply chains and therefore every investment portfolio has natural capital risks, and the time for understanding this risk is not in the future, its next year. 

John Lloyd
 

Modern Diversification

So if the investments industry is facing a changing landscape while it adjusts for a more sustainable future, is there a stable path forward? In a word: diversification.

After a decade of stable growth at traditional exposures, forecasts suggest that markets will shift and reward multifaceted, dynamic portfolios. This means it’s time for investors to take action, and many of our chat participants were quick to point out that cryptocurrencies offer a new opportunity for investors looking to diversify for the future. As they do so, April Rudin noted how wealth managers and institutional investors may be able to carve out a role as thought leaders in these non-traditional assets

Does that mean decentralized finance is a silver bullet for investors looking to avoid the next shock? Probably not. Damien Davis observed that the blockchain train is on a collision course with regulators who are certain to step into the market, and whether they’re successful or not, it will impact how investors look to diversify in the future. In the end, those looking for a future-proof strategy may be best served going with the age-old advice that Barbara Friedberg shared: diversify, keep an emergency fund, and don’t jump at the whims of the market.

Going into 2022, investors will need to increase their understanding of cryptocurrency and “real assets” like commodities, rather than just investing in them blindly. This need presents an opportunity for wealth managers to prove themselves as thought leaders.

April Rudin

We may also see some interesting themes play out in technologies like blockchain / DeFi over time. However, given some of the hacks & scams in the space, regulators will need to decide what role they have to play going forward to protect consumers.

Damien Davis

Kind of boring-but universal advice. No one can predict what will be the next big shock to investment & financial markets. Remain diversified across asset classes & internationally. Maintain cash for emergencies. Don't jump in & out of mkts

Barbara Friedberg

 

 

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