FTSE Russell Convenes | Episode 3, Geopolitical series

Signposts in 2025's risk roadmap

December 19, 2024

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Welcome to the conclusion of our Geopolitics and Financial Markets, FTSE Russell Convenes mini-series. In this final episode, we are joined again by the insightful Tina Fordham, Founder of Fordham Global Foresight.

Tina delves into her concept of "geopolitical denialism" and shares her expert analysis on a range of pressing issues: the potential impact of Trump 2.0's first 100 days, the latest developments in Syria and South Korea, the upcoming 2025 elections in Germany, and other critical events on the 2025 risk map.

Will 2025 be a year of challenges or opportunities? Discover Tina's unique perspective and find out if there are silver linings amidst the uncertainties. Watch our video.

Watch the video

I'm David Sol and this is our third episode on geopoliticsand financial markets.Our guest today knows everything about geopolitics.She is the founder of Fordham Global Foresight and was nominatedas one of the most influential women in finance.Welcome back Tina.Great to see you David.Tina, you're one of these bright people who know and speak a lot of languages.You too!Recently you coined a new termgeopolitical denialism.What is geopolitical denialism and why does it matter?What is geopolitical denialism?Well I took my cue from the expression climate denialismand those are the people, you know, the flat earther sorts of peoplewho think that climate change isn't real.During my 25 yearstalking to investors and business leaders about geopolitics,there's always a subset of people who say, well that's all very interestingbut geopolitics doesn't move markets.Part of my mission and I do have a mission is toto be more targeted andto be more targeted andmore precise where we can be about just why it isthat we say that business leaders need a mental mapfor thinking about geopolitics and understandingwhere the inflection points and linkages might comebecause it’s true, if you are a trader, you probably haven'tseen very many instances where a geopolitical event had a market impact.Something like the unravellingof the regime in Syria for example is a good one.There wasn't a precise market impact there but in this month's Navigatorwhere we track these kinds of things, we have flagged it as a top riskand that's because of not just the directmarket impact, but second and third order implications.For example, refugee flows coming in and out of Syriaand these have become political events,political risk events over the last several years.So we need to change our mindset and we need to think more widelyabout geopolitics.Being involved in geopolitical denialism isn't going to help you in the timeahead of us, which we think will be an age of more geopolitical dislocation.So you need a framework and a clear roadmap to understandand connect the dots between various events.Now in the first two episodes we spoke about US electionsand how 2024 was different from 2016.To your mind, what can we expect from Trump 2.0?Well the question of what we can expect from Trump 2.0has really overtaken just about all contentthere's a question about whether that's really justified or not,but look at the fact that time magazine just named Donald Trumpthe Person of the Year.Now their criteria is not to you know, identifythe best person of the year.It's not the Nobel Peace Prize, but the personwho's going to be most influential.So I think that that's quite telling.In terms of what to expect,how do we go about making that assessment?If we look at what Trump has said he will do on day one.I've been saying for the last five weeks, and it's only been five weekssince the US elections that given the volume of promisesthat Trump has made for day one, it would have to be a biblical day.As in, the Lord made the Earth in seven days, very long indeed.So differentiating between campaign rhetoric, actual intention,isn't just about sincerity, it's also about capacity.So we have looked at, for example,which of Donald Trump's campaign promiseshe can do via executive authority without needing assistancefrom Congress, which he can do alongside congressional authority.Trump does, of course, have a majority in both chambers, but it's very thin.It's only four votes, so he's not guaranteedand another kind of layer for thinking about what Trump can accomplish,where he needs the support from Congressthe members seated are going to be upfor re-election, many of them, in two years timeand the ones who are facing their publics,their constituenciesmay have reason not to go along with everything that Trump wants.So it's a little more nuanced, I thinkbut there's no question about the fact that Trump has got a mandate.It's a question of how he uses it. In terms of policy prioritiesI think we should expect him to move on immigration.He has promised mass deportations.These are popular with the publicand by the way, we're already seeing similar kinds of public opinion datacoming from other countries where immigration has risen upthe list of concerns for voters.So immigration clearly will be acted upon.Trump has talked a lot about, grocery pricesand he said just yesterday,once they're up it's hard for them to come down.That's a bit of a different tune.Fed independence.Something else that he has said quite a bit about.I do think that Trump will focus mainly on the domestic agenda, but right nowhe's really making the most of the fact that he's getting visitedby foreign leaders.Justin Trudeau came to Mar-A-Lago.Keir Starmer was at Mar-A-Lago.Trump was at the opening ceremonies for Notre Damein Paris last weekend and had a chance to see Zelensky.He's where he likes to be making deals, making bilateral dealsand a lot of that's going to be untransparent.So look for more algorithms and other efforts to come outthat will try to kind of game out what Trump might say and do.I prefer to look at the policy trajectory.Now we're coming towards the end of the yearbut things are certainly not slowing down.In your recent publications, you mentioned Syria and South Korea.Now, what are these events actually telling you?Well I talk a lot about howthere are really very few genuine black swan events.I would say, David, that almost every client event and keynote speechthat I give on geopolitics the people ask mewhat's the thing that we're not thinking about?The unknown unknown?Yeah the unknown unknownTo quote our old friend, the late DonaldRumsfeld.In fact, there are very few unknown unknownsand complete surprise black swan events.What I usually say is the things that move from the backof the Financial Times to the front and we're not paying attention to them.The pandemic, for example, was not a black swan.Epidemiologists have been talking about a pandemic for a very long time.So on the idea about how we need to think aboutframeworks, how we need to look at data points and things,something like the collapse of the Assad regimeis a perfect example of a quote,the famous quote from Hemingway about suddenlyor gradually rather than suddenly. He was referring to bankruptcy.So Syria for 54 years under the Assadregime, was a difficult, brutal, despotic state.Under Assad Junior, it became even more complexand then 12 days it took after a 13 year civil war.In 12 days, that capital fell and Assad fled to Moscow.Is it a black swan event?Well that may be too technical but it’s safe to expect that where you havefrozen conflicts, low intensity civil conflicts, which is what Syria waswe have this in the Horn of Africa and elsewhere.Eventually something will break, but the whole processis a bit slower than most market participants expect.The difficulty with trying to assess the risk in Syriais that there is direct connection to the conflicts between Israel and Hamasin Gaza and Russia and Ukraine because so many of the same actors are involvedand so for market participants, it's quite tricky to assess Syria risk.It's been isolated during the 13 year civil war.There are no foreign companies present to speak of.It's not an energy producerand yet we know from Afghanistan,that failed states and failing statescan also be kind of vectors of geopolitical risk.You asked about South Koreaand I think we could describe that similarly.One of the things that came to mind is that,of course South Korea is an OECD country.It's considered an advanced industrialised democracy.It wasn't that long ago, however, that it was a military regimeand it can be difficultand it can be difficultor if you're not a student of history, perhaps just unknown that politicalchange, the development of institutions, takes timeand to consolidate normswhat we political scientists talk about is as norms and behaviours also takes time.One of the outcomes of more kind of,I want to think of a diplomatic word.Less respect for institutions.Less respect for institution, more personalised regimes.Business leaders can like it, but it means that it is easier for eventslike the sudden declaration of martial lawin South Korea, that it was undeclared.Now we're in this period of uncertainty.We've got a lack of transparency.This is where markets need to remember that democracies do offer more predictableenvironments and respecting norms and having independentinstitutions makes your job a lot easier when those start to fall away.This is the kind of stuff that happens.Now let's take a look atnext year we spoke, of course, in the previous episodeabout 2024 as being a year of many elections across the world.2025 an election is in Germany.Why are they so important?What is it that investors should be looking out for?Well, we have identified German elections, which will take placeFebruary 23rd as our political signpost of the year.Now, a good thing about 2025, at least at this point, is that wewe don't have very many systemically significant elections,whereas, as you said, 2024 had more than ever beforeand not only that, there was a pretty uniform trend.Incumbents either lost vote share or lost outrightin every case except for in Mexico.Moving back to German elections,they are important not only for Germany, but for Europe.We're in a period where concerns about European politicalrisk have been heightened.The French government,or at least the parliament, has collapsedand one of the things that investors are concerned about isthat Europe is particularly exposed to Trump tariffs and trade riskas well as to Russia and the war in Ukraine and the expectationthat Europe will have to contribute more to defence.This is going to have domestic political implicationsfor every government in the European Unionand so with that in mind, Germanyas the largest economy and as one of the most importantdrivers of the EU, is going to be very much in focusand with that in mind, we are expecting a change in government,relatively market friendlycentre right under the CDUbut still a lot of pressures will be under the new leadershipand often it takes months in Germany, even in goodeconomic and political times, to form a coalition.So we think that investors will be looking very closely, at the German electionsand with a mixture of hope and concern.Okay well we of course, will be monitoringthe market reactions across these events.the market reactions across these events.the market reactions across these events.Can we go back to the risk roadmap?Of course you spoke about Germany and the elections as being a very importantsignpost, within your framework, you talk about risks for 2025,what are some of these other signposts on your riskroadmap and framework?Well, we've got the Trump administration policies in the middle.They may be good for Americaand this is what you see, I think reflected in market euphoriabut again, the tariffs risk is something that is of concernto US friends, frenemies and foesand so the risk of a trade war is I think, underpriced at the moment.You can see that China is already positioning.Of courseTrump having said that he would slap 60% tariffs on China.Is it a negotiating strategy?Many would say yesbut it increases a lot of uncertainty into the environmentand of course, there will be implications for consumer behaviourand for GDP as well as wider tensions.I should have mentioned that Canada has elections next year tooand as a neighbour of the United States, Canadais already kind of bracing itself for negotiations.Just recently there were some headlines thatI think a governor in Canada had said that it would stop providing,energy supplies to American homesin the northeast.This is the kind of thing we're going to see more of becausenegotiations in business are a little bit different from negotiationsin geopolitics, in that the collateral damage can be,wrought upon your constituents everyday peopleand there could be some blowback that you just wouldn't see in an M&A transaction.Is it all doom and gloomor are there some silver linings, that we should look at?Well, there are always silver linings if there's changeand that's why I always invoke this phrase from Louis Pasteurthat I like so much that, fortune favours the brave.That's from Enid, but, chance favours the prepared mindmeans that investors need to be thinking througha wider range of outcomes.Some of them will be positive surprises, but if you haven't contemplated them,you might not know how to react when it comes to Europe where we are.As I said, I do think European political risk concerns are a bit overdone.Europe does tend to find a way to do thingsunder pressure and Europe is going to be under pressure.So perhaps counterintuitively, I do think that we'll seemore efforts to bring about EU cohesion,maybe even some integration following German electionsbut certainly plenty of volatility as well.A big question for me, though, iswho will lead diplomatic efforts when it comes to Syria.Trump has already said we should not intervenebut it is very difficult for post-conflict societieslike Syria to move forward without outside interventionand there is a great deal of conflict fatigue present right now.Now, in this building, we often welcomegraduates, university graduates and students, secondary school students.For those who wish to pursue a careerin geopolitical analysis, what would you recommend them?What should they be doing?Well, first of all, I would commend them for their interestbecause in a way, geopolitics is something that's fairly new on the world stage.Even international relations theory hasn't been around all that long.We're talking about decades rather than hundreds of yearsbut my answer in my guidance might be a little bit surprising in that,I am a believer that you need to read history no matter what you're doingbecause a lot of what we do in markets is pattern spotting, right?It's, you know, it's recognition.If you haven't read history, thenyou don't appreciate that something that's taking place now.Well, something like it has probably already happened beforeand you can look at and you can even chart thetrajectory from there.And draw parallels. -Yes.If you haven't read history, you're constantly surprisedby the direction that the world can take.So to me history is never boring.You know, it gives back so much.Another skill that I think is of vital importance is being able to write.I'm all for AI.We use AI tools at Fordham Global Foresight as wellthat can be time saversbut to me writing clearly is thinking clearlyand even if most of the writing you do is writing emailsto be clear and concise, to get your meaning acrossis something that will help you stand out from the crowdno matter what you do. When it comes to geopoliticsand maybe not only geopolitics,answering what we call the so what question is really importantand no matter what kind of expert you are, remember thatyour value to whoever is asking you the question, isn't in showinghow much you know but in targeting itto why the person is asking the question.And highlight the relevance. -Yes.So when people ask me what's going to happen next in Syria,I realise that they don't necessarily want to knowa great deal of the many complex scenarios.They’re usually asking because they have other investments in the Middle Eastand so what they're asking me is, will what happens next in Syriaimpact my investment in the GCC states?Right? So why is somebody asking you the question?So critical thinking, concise writing and knowing history and I agree with you.History is not boring and neither are you Tina.You're very interestingand I'd like to thank you for, yet again, a razor sharp analysis.Thanks for having me, David.With that we're coming to the last episode of FTSE Russell Convenesand I'd like to thank our listeners and viewers and wish you,your family and friends, a fantastic festive seasonand we hope to see you again in the new year.

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