“We now have a whole generation that does not remember the last time that geopolitics was a driver to price movements in markets,” said Philippa Malmgren, president and founder of DRPM Group, at the 2015 CFA Institute Middle East Investment Conference in Kuwait City. The geopolitics of the Middle East, the United States, Russia, and China has created a new Cold War of unquantifiable forces that is more than capable of moving markets, Malmgren told her audience of Middle Eastern investors.
What is making matters worse for investors is that “we are all so specialized these days,” Malmgren added. “We have a globalized, interconnected world that is being run by people in narrow and specific silos.” Malmgren’s mission is to return geopolitics to the forefront of the landscape where it belongs, having spent many years after the end of the Cold War on the sidelines of investor attention. She believes defense and geopolitics have been marginalized for too long, as investors bask in a post–Cold War peace dividend and long periods of moderate inflation.
In the last decade, we have created an extraordinary debt problem and a slowdown in the world economy that has been brought about by that debt, according to Malmgren. Central banks in the developed countries have been doing their level best to create inflation whilst at the same time saying their loose monetary policies are not yet having the desired effect and so must be continued, she added. For emerging markets, such as those in the Middle East, “it is hard to believe the addition of record sums of capital into the markets have had no effect,” said Malmgren. When quantitative easing was in full flow, commodities prices, property, rents, and stock markets all hit new highs.