Having broadened and deepened its fixed income capabilities significantly over many years, AllianzGI is now taking the natural next step in the evolution of its fixed income offering by bringing its capabilities into an integrated, global structure.
The world is becoming a better place. All the indicators concur:
increasing life expectancy on every continent of the planet, falling
child mortality and child labour, rising prosperity and, from a global
perspective, declining inequality. Wherever the forces of creative
disruption are allowed to unfold, we have every reason to be
rational optimists. But what does this mean for investors and others?
The creative power of disruption
“Disruption”: no word better describes the age we live in.
Disruption – the destruction of the old by the new (and
better), driven by technologies based on digitalisation and
From the steam engine, the railway and the automobile to
information technology, robots and artificial intelligence –
groundbreaking innovations have always been the driving
force behind changes in working processes and social
structures, thereby helping to create the growth of
We can visualise this by looking at the growth in global
gross domestic product (GDP). For centuries, GDP barely
changed at all in a measurable way. Then, with the dawn of industrialisation, it began to rise sharply, even
exponentially. Population growth followed suit. At the
beginning of the 19th century, the global population
exceeded one billion for the first time. Yet the famines
feared by Robert Malthus did not come to pass. Innovations
in agricultural technology not only ensured that more and
more people could be fed, but also increased prosperity
(income per head). Prior to industrialisation, bitter poverty
had been the norm for all but a powerful elite. By the early
1980s, the proportion of the world population living in
absolute poverty (living on less than US$ 1.90 a day) stood
at 45%. Today, it is just 10%, despite the fact that the global
population has grown to approximately 7.5 billion. Without
innovation, without technology, many would simply have
starved (see Chart A/ and Chart B/).
A/ GPD of the world (Inflation adjusted in 2011 international Dollars)
Exponential growth leads to more wealth
* inflation adjusted in 2011 international Dollars
Source: OurWorldInData.org/economic-growth, AllianzGI Global Capital Markets & Thematic Research; Data as of: 2015
B/ Percentage of the world population who has less than $ 1.90 a day to live.
Source: Thomson Reuters Datastream
As of: December 2017
The decline in absolute poverty has been paralleled by the
emergence of a “global middle class.” The World Bank
defines the “middle class” internationally as comprising
those earning between US$ 11 and US$ 110 a day, based
on 2011 purchasing power parity. As the Brookings
Institution think tank has concluded, the world recently
reached a “tipping point” in September 2018: for the first
time, half of the global population are now “rich” or “middle
class,” and the other half “vulnerable” or “poor.” Brookings
predicts that this trend of declining poverty and a growing
middle class will continue. While the number of people
considered poor will fall further, the ranks of the middle
class are set to swell to 5.3 billion people by 2030.
It is not only the population size that is growing, but also life
expectancy. At the end of the 18th century, average life
expectancy around the globe was less than 30. Today, it is
more than 70. The average American lives to almost 80, and
the average European even longer. In Africa, average life
expectancy is around 60, while in Asia it is over 70
(see Chart C/).
Growing prosperity is the driver behind these developments,
and is leading not only to higher living standards thanks to
medical care, access to clean water and electricity, but also
to the spread of technology. Over 85% of people have
access to electricity.
At the same time, the spread of information is accelerating,
and an ever-larger share of the world population has access
to knowledge and markets e.g. via smartphones and the
Internet (see Chart D/).
C/ Global and Regional Life expectancy since 1770
Source: OurWorldInData.org, AllianzGI Global Capital Markets & Thematic Research
Data as of: 2015
D/ Share of the population using the internet
Source: OurWorldInData.org/internet, AllianzGI Global Capital Markets & Thematic Research
Data as of 2016/17
Of course, there is a flip side to everything. This is clearest
when it comes to the environment, and especially the
level of CO2 in the atmosphere, which has increased
exponentially since the Industrial Revolution. The
concentration of CO2, which stood at approximately
280 ppm in the centuries prior to industrialisation, is
now 400 ppm and rising.
But there is another interesting trend: CO2 emissions
per dollar of GDP have declined in recent decades (see
Chart E/), as has energy intensity (units of energy per unit
of GDP). Though it remains low, the share of renewables
in the global energy mix is climbing.
E/ Carbon emissions per US-Dollar GDP
Source: OurWorldInData.org/internet, AllianzGI Global Capital Markets & Thematic Research Data as of 2016/17
Investing as a rational optimist
The world is changing – but is our investment approach
changing with it? Rational optimists should consider the
Investing in shares – investing in tangible assets The most important question investors should ask
themselves is: “If I follow the paradigm of rational
optimism, am I also investing in this “optimism,” this
“transformation?” “Do I participate in innovation and
value creation?” This means investing in companies (e.g.
through equity strategies) and therefore in real assets.
Savings books and government bonds will not cut it.
Investing in the drivers of change Technological change pervades every industry and
every region. Why not also invest in those companies
that are bringing about this change and leading the
way in implementing new technologies?
Investing in a better world The world may be improving, but there is still a long way
to go. Child labour still exists, working conditions remain
poor in parts of the world, and some businesses and
countries are badly governed. There is still inequality,
environmental pollution and an excessive human
carbon footprint.... The list could go on.
For investors, it is therefore important to invest in a better
world. This need not mean missing out on profits. It is striking
how “ESG” (Environmental – Social – Governance) criteria
have become more important to investment decisions in
recent years. The ESG criteria are a growing and evolving
catalog of investment criteria that help to direct funds into
investments that value environmental protection, good
working conditions and good corporate governance. This
approach, long used by institutional investors, is steadily
gaining importance among individual investors, too –
especially with the trend toward integrated ESG among
investment professionals/strategists. The ESG criteria are no
longer regarded as a category used to exclude investments,
but as an integral part of analysis and security selection.
Academic studies have shown that this need not be to the
detriment of investors.
There are plenty of reasons for “rational optimism.” Things
are often better than we think.
About the author/s
Ph.D., Global Head of Capital Markets & Thematic Research
Hans-Jörg Naumer is Global Head of Capital Markets & Thematic Research with Allianz Global Investors which he joined in 2000. The focus of his work is on analysis relating to strategic and tactical allocations, specific investment opportunities and the identification of long-term investment trends. Before joining the firm, he worked for Société Générale, where he became the Head of Research Germany and was part of the French investment bank’s international research team. From his vantage point as an analyst and economist, he observed the establishment of the Economic and Monetary Union and thus ranked among the prime “ECB Watchers”. He started his professional career in the corporate banking division of Deutsche Bank in 1994. Hans-Jörg studied economics at the University of Mannheim, one of the leading universities for economics and business studies in Germany. During his studies, he worked at the Chair for Macroeconomics.
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