Insightful Discussion on Global Trading in a Fragile World, Featuring Michael Bogoevski from CMC
In the present day, the blend of extraordinary technological growth and heightened geopolitical turmoil is drastically altering the playing field for traders and investors. A fresh whitepaper from CMC Markets unveils the underlying factors that are challenging the existing order and offers advice on operating in this new geopolitical landscape. In this latest episode of Forbes in Focus, CMC's head of institutional sales, Michael Bogoevski, shares his insights on navigating the new geopolitical landscape and finding opportunities in this fragmented world.
Let's dive into a condensed segment of the conversation. To catch the full interview, be sure to watch the video.
Welcome to Forbes in Focus, Michael. We're witnessing remarkably intriguing political times. Let's discuss what sets this political climate apart. How have we entered, or are we entering a new trading paradigm?
The US and China have always been at odds, but this confrontation is more aggressive than anything we've seen before. Stylistically, we haven't experienced this level of geopolitical tension before. We’re watching the American government, which has acted as the Western world's peacekeeper since World War II, suddenly becoming unusually aggressive towards allies. This aggression, at the cost of relationships, is allowing prices in these markets to drop, benefiting both the US and China.
Turning to semiconductor technology and AI in particular, why is this specific area so vital for traders to concentrate on?
At the moment, I view chips and access to the most advanced technology as the new oil crisis. The struggle for control, power, and dominance in this sector is reminiscent of the energy battles we've witnessed over the past 50 years. So, there is an intense fight happening. It won't be a physical fight; instead, it will focus on access to the best chips and ensuring these companies are based within your home market.
We witnessed an example of this recently during the COVID-19 pandemic, when pharmaceutical supply chains were disrupted as borders were closed. I believe what we're seeing now is an extension of what we experienced during the COVID crisis. It's about securing supplies and ensuring dominance over supplies during crises, as well as maintaining access to key assets during such unforeseen situations.
Political headlines, such as wars, international crises, or elections, often dominate the news. How do these events typically impact financial markets, and why might a trader approach them differently compared to a casual observer?
Looking back at 2024, it was a year with an exceptional number of elections. With every government that was in power being overturned, including the US government, we've seen instability throughout Western economies as new governments are arriving with new fiscal policies and potentially different political platforms.
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In the past, we've had quite stable governments, resulting in consistent fiscal and monetary policies. Now, we're witnessing considerable change, with the Fed Reserve potentially needing to step in and lower interest rates to stabilize the US economy.
As a result, a trader must stay on top of government developments, such as those in power, their political platforms, and how they plan on implementing them, as these factors can have significant effects on capital investments and day-to-day trading.
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Some argue that markets often price in geopolitical events well before they're widely reported. Why is it essential for traders to understand this?
The current geopolitical situation is tricky because when we discuss trade, its impacts on forward earnings are essentially infinite. Markets are finding it challenging to price due to uncertainty about the true consequences of the current situation.
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We're seeing a direct impact on macroeconomic forces, future inflation, and a multipolar world where order is being disrupted. We've spent the last 40 years focusing on globalization, which brought about increased capital flow to the most efficient countries. Now, that order has been disrupted.
So, we don't know the ramifications of our actions, and it will take many quarters or even years to truly understand the impacts. We're just starting to see them, with more profound consequences expected within the next three to six months.
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Lately, you've seen the US shifting away from funding global conflicts such as those involving Ukraine and NATO. How is this realignment affecting financial markets, and where should traders be focusing their attention now?
Every nation has limits on the number of focus areas it can tackle in any given time. I believe the US is currently quite focused on tariffs and what's happening in Southeast Asia. This retreat from the Middle East and Ukraine allows the US to concentrate on its domestic economy and Southeast Asia, where it's facing a significant threat from China's economic growth.
For traders, this means recognizing two types of flows. Firstly, German markets, for instance, have performed exceptionally well since January and February this year, with increased flows due to a new military budget, a new government, and promises to increase military budgets across Europe.
Secondly, if one believes in the US initiatives, the domestic economy and particularly small-cap to mid-cap companies within the US index markets may benefit as focus returns. Currently, the Russell Index, for example, has performed poorly over the past couple of years. So, you could view this as an opportunity when you see flows and focus returning within the US.
For more insights from Michael Bogoevski and other industry experts from CMC, download the whitepaper "Trading at Boiling Point: Thriving in a Chaotic Future" here, and don't forget to watch the full video.
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References
- "Trump has turned America’s vagabond loose: Aid to Ukraine is key test," The Globe and Mail, September 19, 2019, https://www.theglobeandmail.com/opinion/comprehensive-ukraine-aid-package-a-test-for-trump/article37556418/
- "The Tech Sector and U.S.-China Relations," Council on Foreign Relations, September 24, 2020, https://www.cfr.org/backgrounder/tech-sector-us-china-relations
- "Aviation Industry and Globalisation: Challenges and Opportunities," ResearchGate, January 1, 2018, https://www.researchgate.net/publication/327080986_Aviation_Industry_and_Globalisation_Challenges_and_Opportunities
- "U.S.-China trade war: Will history repeat itself?," Deutsche Welle, September 4, 2018, https://www.dw.com/en/u-s-china-trade-war-will-history-repeat-itself/a-45322268
- "The impact of U.S.-China trade tensions on the global economy," Politico, July 24, 2018, https://www.politico.com/magazine/story/2018/07/24/us-china-trade-war-global-economy-220081
In the context of the geopolitical landscape, technology sectors such as semiconductors and AI are becoming increasingly significant for traders to focus on, as they represent the new 'oil crisis' due to the intense fight for control and dominance between nations.
With the US shifting focus from global conflicts, European markets, particularly those related to military budgets and defense, could present opportunities for traders. Additionally, small-cap to mid-cap companies within the US index markets might benefit as the US focus returns, potentially indicating a recovery in the Russell index.
