Financial markets: Opportunities and risks of a new world order

New era in world politics and its consequences for financial markets

2022 represents a historic turning point for global politics as well as financial markets. This new era will also have far-reaching consequences for the world's economy and the global security order. Institutional investors need to adapt to these changes.

New world order will shape financial markets

"The old world order is crumbling and a new one is emerging," says Burkhard Varnholt, Chief Investment Officer of Credit Suisse (Switzerland) Ltd. Speaking at the Credit Suisse Financial Market Perspectives presentation, he explained that the world was facing a new Cold War, together with a revival of protectionism and industrial policy.

He added that this would also lead to the creation of a new energy order. "Europe has benefited from cheaper Russian energy for decades and now needs to change direction," Burkhard Varnholt explained. The US was the beneficiary, he said. "In the space of a year, it has transformed itself from a gas importer into the world's largest gas exporter."

Switzerland plays key role in European economy

Georg Häsler, Security Policy Editor at Swiss daily newspaper NZZ, likewise addressed the geopolitical transition that is resulting from the war in Ukraine. "The escalation of power politics continues," he said, adding that "If it is not possible to stop the Russian army, new areas of conflict could arise – including in the eastern Mediterranean, Eastern Europe, and the Balkans." The West now needed to focus on its own strengths again. "The days when we had cheap labor from China and a gas station in Russia are over," said Georg Häsler.

But what about Switzerland? For Switzerland there would be new opportunities – but also new challenges, he added. "A globalized world is crucially dependent not only on resources but also on cross-border flows," the security policy expert explained. This applied not only to goods and energy, but also to financial flows, for example. Georg Häsler explained that Switzerland lay at the heart of this system – in freight transportation in particular, but also as an essential part of Europe's electricity grid. That made it all the more important for Switzerland to secure these flows and key positions if it is to remain a reliable partner.

Positive outlook for global economy

Geopolitical developments are also impacting companies. "Instead of 'just in time,' it's now 'just in case,'" said Burkhard Varnholt. That meant new infrastructure projects in particular, he added. "There's an enormous hunger for infrastructure as well as capital to finance the construction of projects. This will be one of the key Supertrends in the years ahead," he explained. Moreover, inflation is likely to fall in 2023. Due to the Fed's more aggressive approach, a recovery is likely to start in the US before spreading to Europe as the year progresses.

Overall, the outlook for global markets next year is positive – despite all the uncertainties. "In our Global Outlook we expect growth of 1.6%. The global economy is likely to cool, though we don't think this will culminate in worldwide recession," said Burkhard Varnholt.

How will financial markets fare in 2023?

What does this mean for capital markets in 2023? Burkhard Varnholt had a positive message for institutional investors: First of all, cash investments and bonds will once again yield returns. As a result, bonds will need to be re-evaluated fully given that they generate enough of a cash return to offset a degree of interest rate fluctuation.

At the same time, the Swiss real estate market is more robust than that of other regions of the world. Indeed with a return of between 3% and 3.5%, it is likely to become the most attractive real estate market in the world in terms of risk/return ratio. With Swiss equities, meanwhile, institutional investors can expect a return of 6% to 9%. Burkhard Varnholt therefore reiterated his view that "Looking at the road ahead is definitely more encouraging than looking into the rear-view mirror.