Most of us are happy to see the back of 2008 — it turned out to be a real horror show for most people in the world, from high stepping Palm Beach millionaires to simple Bombaywallahs going about their business at VT station.
But as we look forward to next year, it’s even more difficult than usual to see how things will turn out. Visibility is extremely poor — poorer than it’s been in a long, long time.
It’s hard to understand, for instance, whether the steady decline in the VIX index, which has fallen back to levels seen in early October, indicates that the financial crisis is over? LIBOR has certainly reverted to more stable levels. Or is it merely a calm before another storm, which could gather steam in a few months as failures in the real economy begin to exert renewed pressure on bank balance sheets?
Is the India story still alive and well given that less than 20 per cent of our GDP is dependent on world growth, which is expected to be anaemic? And, correspondingly, does the recent sudden and sharp appreciation of the rupee signal that global investors are actually coming back to Indian markets? Or is this a year-end thin markets sucker punch, with another vicious bout of volatility on the cards for early next year?
Will the Bombay terror attack lead to dramatically increased tensions, or worse, between India and Pakistan, with the associated fallout on life, liberty and financial markets? Or will the still-energized citizen protests be able to build a critical mass of activism to where the terror attacks end up as a turning point for the region?
Will Mr Obama be able to galvanize domestic opinion to use America’s still huge economic and political leverage to create a truly new world order, which is much more inclusive and sustainable? Or will his energy and enthusiasm get sucked into the growing fiscal morass that is being created to try and stave off financial Armageddon?
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The optimist that I am, I believe that YES, YES, NO and YES are the answers to the first questions in each of these paragraphs. And, correspondingly, that 2009 will herald a new world in many, many ways.
First of all, and rather obviously, there will be a shift of focus from quick returns to more sustainable returns. Whereas nobody (at least in India) would have even looked at under 20 per cent returns in the past, I think anything north of 15 per cent — perhaps even 12 per cent — will be looked at with suspicion.
The time horizon over which people look at investments — or, for that matter, relationships of any nature — will lengthen. Companies who have nurtured their client relationships — and by this I don’t mean just getting them tickets to a movie premiere — will be able to hold on to, and perhaps even increase, market share. Again, while pricing power will be difficult everywhere, companies that have a genuine value proposition may be able to increase prices, as people will be focusing on value, rather than simply on price.
Equity markets will remain subdued, despite the fact that many of them are trading at discounts to book value, and, in some cases, at a discount to cash. This is because with the huge cloud of uncertainty over our heads, it is difficult to assess real value, and, these days, nobody’s doing anything unless they see value.
Of course, it is possible that the two nodal points coming up — the turn of the year and Mr Obama’s inauguration — could begin to clear the cloud cover. And, indeed, the inauguration of President Obama will certainly be a key part of the new world.
For the first time perhaps ever, the US will have a president who understands — and acknowledges — that the US is a great country like every other, and not simplistically the greatest country in the world. Slight as this difference might seem, it underpins a genuinely global worldview, which is also reflected in the gender and race make up of Mr Obama’s team of advisers. This obvious — and stated — recognition that you have to acknowledge differences and work with them is really the only admission ticket to today’s globalized world. With the largest player finally joining the table, we will, finally, get moving on a whole host of issues that are structurally constraining global growth, including the environment, trade subsidies, inequity, and, of course, global terrorism.
The structural decline of the financial sector will also enable increased focus on these, and other, critical areas. Business school enrolment will decline and there will be more young people choosing new and different paths into the future. We are already seeing this, and if the recent surge of social activism after the Bombay terror attacks is any indicator, there will be a huge amount of creative energy released towards addressing the real structural problems facing the world.
2009 may well turn out to be a nodal point in world history, resulting in a global culture that is more inclusive, more spiritual and driven from the East, as I had written in a column some months ago, “the sixties, without any — well, hardly any — drugs.”