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March 5, 2018

Actively Riding the Wave of ‘Creative Disruption’

Inspired by economist Joseph Schumpeter’s concept of “creative destruction”, the unspoken theme of Allianz Global Investors’ most recent Investment Forum seemed to be “creative disruption”. Session topics devoted to three types of disruption – technological, political and investment-related – dominated the event.

Technological disruption begins with the knowledge that productivity growth in both developed and emerging economies has been receding for some time now, in spite of technological change. Academics seem to agree that actual productivity growth may have been underestimated, but a downward trend nonetheless remains.

Technological change is transforming the labour market and is already evident in wage and job trends. Oxford University estimates that about 50% of all jobs are being affected by automation. The study is not infallible, in particular because it ignores new job opportunities, but it does show the impact creative disruption can have.

And then there is political disruption. Just think of the de-globalization trend and the increasingly multipolar world order. History has often been marred by conflicts over the distribution of resources. The same could hold true in the future.

Disruption is also visible in investments. In a world in full flux, traditional backward-looking investment solutions like ETFs might become obsolete. For example, equities now spend an average of just 12 years in the S&P 500 Index; in the early 1960s, it was 60 years!

Understand. Act.

Productivity growth will probably improve only slowly, as pioneering companies put new technologies into broader use. Inflationary pressure remains limited, with little danger of deflation, especially as President Trump’s administration continues to ramp up its seemingly Keynesian fiscal policy in the late stages of the US growth cycle.

Against this backdrop, central banks have every reason to take their feet off the gas. This change in course is likely to become increasingly apparent at the Federal Reserve and probably also at the European Central Bank, albeit probably agonizingly slowly in the ECB’s case. Both geopolitical disruption and monetary disruption are likely to generate volatility in the capital markets, while government bonds continue to generate zero and, in some cases, even negative yields. So real returns can only be achieved by taking on measured risks. This is why active management is essential!

Investing involves risk. The value of an investment and the income from it will fluctuate and investors may not get back the principal invested. Past performance is not indicative of future performance. This is a marketing communication. It is for informational purposes only. This document does not constitute investment advice or a recommendation to buy, sell or hold any security and shall not be deemed an offer to sell or a solicitation of an offer to buy any security.

The views and opinions expressed herein, which are subject to change without notice, are those of the issuer or its affiliated companies at the time of publication. Certain data used are derived from various sources believed to be reliable, but the accuracy or completeness of the data is not guaranteed and no liability is assumed for any direct or consequential losses arising from their use. The duplication, publication, extraction or transmission of the contents, irrespective of the form, is not permitted.

This material has not been reviewed by any regulatory authorities. In mainland China, it is used only as supporting material to the offshore investment products offered by commercial banks under the Qualified Domestic Institutional Investors scheme pursuant to applicable rules and regulations.

This document is being distributed by the following Allianz Global Investors companies: Allianz Global Investors U.S. LLC, an investment adviser registered with the U.S. Securities and Exchange Commission; Allianz Global Investors GmbH, an investment company in Germany, authorized by the German Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin); Allianz Global Investors Asia Pacific Ltd., licensed by the Hong Kong Securities and Futures Commission; Allianz Global Investors Singapore Ltd., regulated by the Monetary Authority of Singapore [Company Registration No. 199907169Z]; Allianz Global Investors Japan Co., Ltd., registered in Japan as a Financial Instruments Business Operator [Registered No. The Director of Kanto Local Finance Bureau (Financial Instruments Business Operator), No. 424, Member of Japan Investment Advisers Association]; Allianz Global Investors Korea Ltd., licensed by the Korea Financial Services Commission; and Allianz Global Investors Taiwan Ltd., licensed by Financial Supervisory Commission in Taiwan. 221285

This article was kindly sponsored by Allianz Global Investors

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