The turning of the year is a great time for me, says Malcolm Durham from Flexible Directors. I love to plan what the future might hold for my clients and at New Year I get to hear from others what the year might hold for all of us. I’m not so interested in the Royal Wedding and Births (despite watching Suits from the beginning) but the economic picture does fascinate me.
Those looking at data and trends forecast that global growth will be 3.8 per cent, the same as last year. They point out that this is only the sixth time in the last 30 years when every G20 country has grown and that there has been 10 years of growth in the US, its second longest such period. Continued growth is expected to come from many areas:
- Big data – companies that invest in creation, transmission, storage, processing, consumption, and monetization of data will capitalise on this capability (so long as we let them and they comply with the General Data Protection Regulation);
- Automation and robotics, the internet of things, 3D printing, robotics and AI (the latest common acronym) will improve the way things are manufactured and distributed (so long as they can get from Calais to Dover);
- Smart mobility from Uber to driverless cars and powerful batteries will change the way we move around;
- Chinese infrastructure, including opening up its physical links to its neighbours and ports (One Belt One Road) will generate trillions of construction activity which will be re-paid from improved transport;
- Genomics which can already detect cancer in the genes for $400
A longer term view suggests that there will be a market crash and a recession of some sort in 2018 or 2019. UK markets are highly valued – exceeding the rule of 20 which says that the sum of the P/E ratio and the dividend yield should not exceed 20 (it’s about 24). Some trends mapped onto the Dow Jones index since 1890 (sic) suggest the same.
And here at home among the UK SMEs I don’t detect an on-going wave of optimism such as there was in the Noughties. In the Noughties we were engaged in moving our businesses into the next century, going on-line. Everyone did it and everyone benefited. But since then I have observed a lull, confirmed again by commentators, and compared to previous eras when railways and electricity had provided their boost to everyone.
So a rosy background and a dull foreground? What are we to do? I suggest identifying which of these waves you can catch and, like a good surfer, being there ready in the water when it does come. FD Solutions was just a two-man band before the advent of broadband which enabled an FD to be present even when he wasn’t there. Suddenly our business looked like a good idea and we rode the wave. I think our next wave is Big Data and our ability to understand it and help businesses use it will determine our success over the next decade.
All of which ignores the fact that there are two, maybe three, people with large red buttons on their desk willing to disrupt our efforts in the name of a better world for their people (apparently). As, I think, a good FD would do, I have taken out an option against the FTSE dropping 20%, at a cost of 1%. So I have foregone 1% of gains which are forecast to be above my budget in order to have the security of a floor on any losses. Markets don’t believe the Index will fall this far, which is why it’s cheap. Overall I expect to be better off than leaving money in the bank. And (through my investments) by being part of the capital invested in these new initiatives I will also play some very small part in making the world a better place. Maybe it will be a happy year?