Do you think you will be better off five years from now? Most say no?
Founded in 1971, the World Economic Forum Annual Meeting is “the foremost creative force for engaging the world's top leaders in collaborative activities to shape the global, regional and industry agendas at the beginning of each year.”
With more than 3,000 participants descending on Davos, Switzerland from January 21–25, 2020, there are two main topics permeating this year’s agenda: global climate issues and global trade.
“The Forum’s first meeting in 1971 was established to further the idea put forward by Professor Klaus Schwab that business should serve all stakeholders – customers, employees, communities, as well as shareholders. In a major update, this year’s Annual Meeting will see the publication of a universal “ESG scorecard” by the Forum’s International Business Council, which is currently chaired by Brian Moynihan, Chief Executive Officer of Bank of America.
While climate change and trade issues are the broad topics on this year’s agenda, there is an economic thread that weaves its way through every topic of this year’s Annual Meeting. That thread is encapsulated in a survey released by PR agency Edelman that broadly measures public trust in an effort to capture current reality. Edelman’s latest survey polled more than 34,000 people in 28 countries and the results are sure to polarize. Let’s examine a few.
Capitalism: More Harm Than Good
More than half of those surveyed agreed with this statement:
“Capitalism as it exists today does more harm than good in the world.”
And the results were similar across ages. In fact, 53% of those over the age of 55 said capitalism does more harm than good, whereas 57% of the 18-34 year olds and 59% of those 35-54 agreed.
Pessimism Depends on Where You Live
The survey asked this simple question: do you think you will be better off in five years (measured by how much money you would have)?
In 15 of the 28 countries surveyed, respondents said they would not be better off in five years. Let’s look at a few countries:
- Japan was the most pessimistic, with only 15% saying they’ll be better off in five years
- France was not far behind with only 19% feeling optimistic
- Germany was next at 23%
In the United States, only 43% of people believed they would be better off in five years’ time, a 7-percentage point drop from a year ago.
But in developing countries, people were much more optimistic. In fact:
- In Kenya, 90% thought they would be better off in five years
- In Indonesia, 80% were optimistic
- In India, 77% were optimistic
- In China, 69% were optimistic, and that number was down from 75% a year ago, a decline greater than the decline in the United States
Why So Much Pessimism?
As a financial advisor, I can’t help but ask the question: why are those in developed markets less optimistic when compared to those in developing markets? And specifically, why are most in the United States pessimistic about the next five years whereas those in Kenya are so wildly optimistic?
Is it because our expectations are too high? Or maybe given the unprecedented almost 11-year bull market run, most of us are expecting a reversal? Or maybe Kenyans believe that things can’t get worse?
Interestingly, if you compare the stock markets in the U.S. to the one in Kenya, the differences over the past 5-years are stark:
- On January 2015, the Nairobi Securities Exchange Ltd 20 Index stood at 5,212. In January 2020, it stood at 2,659 (the NSE20 tracks the performance of 20 large companies based in Kenya)
- On January 2015, the DJIA stood at 17,833. In January 2020, the DJAI crested 29,000 (the DJIA tracks the performance of 30 large companies based in the U.S.)
Are You Optimistic or Pessimistic?
Granted, the comparison between the two stock markets is not at all a perfect measure of future expectations, but it does make one wonder.
So, ask yourself this question:
“Do you think you will be better off in five years?”
If your answer is no, let’s examine why. Because as a financial advisor, I want every single one of my clients to answer with a resounding yes. Not just a yes – a resounding yes.
I look forward to your answer.