Opportunities after Inflation

The global economy is not yet on the safe side, says Max Kunkel, Chief Investment Officer of UBS Germany. In an interview with the GDI, he warns of "possible mistakes by central banks", because "an exaggerated tightening of interest rates could cause significant collateral damage." But he also sees attractive long-term economic potential – particularly in the fields of artificial intelligence and sustainable energy use.
4 July, 2023 by
Opportunities after Inflation
GDI Gottlieb Duttweiler Institute

GDI: Mr. Kunkel, one of the trending terms in politics and economics right now is "De-risking": less dependence on specific countries or suppliers, more reserves and safety nets. In which areas do you see the biggest changes?

Max Kunkel: Developments in recent years have certainly increased the focus of governments and companies on stability and security versus price and efficiency. In addition to the trend toward increased defense spending, cyber defense and secure energy and food supplies in particular are becoming more prominent. In addition, a "chip nationalism" is emerging, reflecting the strategic importance of semiconductor production at home.

Also eine Art High-Tech-Protektionismus?

Military and economic security, like economic growth, increasingly rely on technology. Growing cybersecurity threats and increasing reliance on digital technologies underscore the need for in-house semiconductor capabilities after years of outsourcing.

Von wem geht in den nächsten Jahren die grösste Gefahr für die Weltwirtschaft aus? Von Vladimir Putin? Von Xi Jinping? Von Donald Trump?

I wouldn't focus on individual politicians here. Geopolitics is fundamentally something to think about and worry about. Especially on a company-specific level, certain geopolitical developments can always lead to the need for adjustments. However, the impact of more realistic scenarios for the global economy is often more nuanced, more short-lived, and less negative than is often assumed in advance. One reason for this: the adaptability of people and companies is often underestimated. A bigger risk for me are possible central bank mistakes. An exaggerated hiking of interest rates, for example, could overshoot the target and cause significant collateral damage.​

«Wo aber Gefahr ist, wächst das Rettende auch», schrieb einst Hölderlin. Woher kommen Ihrer Meinung nach positive Impulse für die wirtschaftliche Entwicklung?

In the short term, the strong labor market, fiscal policy and the still high savings from the Covid era, particularly in Europe, continue to have a supportive effect. In some areas, the reopening of the Chinese economy is providing additional impetus.

Und wenn die kurzfristigen Effekte vorüber sind?

There are also longer-term issues with significant potential for the economy. And here I'm not just talking about artificial intelligence: for Europe in particular, the increased political, social and private sector focus on more sustainable and efficient energy production and use is a huge opportunity. Be it in terms of automation and robotics, electrification or the expansion of renewable energies.

At the stock market you often hear the faint consolation: "Your money isn't gone – it's just someone else's now." Let’s take that on a macroeconomic level: If my money is gone due to inflation and crisis – who owns it now?

The current inflation trend is fascinating in that it is not primarily driven by higher wages, as is usually the case. Quite the contrary, real wage growth has been very negative in most industrialized nations for several months. A significant part of the inflation is due to profit margin expansion by companies in a wide range of industries. These companies have been able to more than compensate for their increased costs through disproportionate price increases. In the course of media coverage surrounding geopolitics, supply bottlenecks and labor shortages, solvent consumers were convinced that these price increases were fair. Gradually, however, this is being increasingly questioned – which in turn can dampen the rate of inflation.

Von der Null- oder Negativzinsphase haben besonders diejenigen profitiert, die hoch verschuldet waren. Und wer profitiert jetzt von den zuletzt rapide gestiegenen Zinsen?

Although things are now looking much better for savers, the higher interest rates often do not yet compensate for inflation rates. For the minimum goal of real wealth preservation, therefore, a higher proportion of real assets is still necessary within a sensible global portfolio diversification. In the case of companies, banks and financial institutions, which generate a large part of their income through interest business, can benefit from the higher interest rates.

Max Kunkel spricht am 7. September auf der 73. Internationalen Handelstagung am GDI über «Wirtschaftsausblick: Was kommt nach der Inflation? Wie sich geopolitische Konflikte und ökonomische Veränderungen auf Wirtschafts- und Kaufkraft auswirken.»

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