George Soros provided recently a series of lectures on what he sees as the “New Global Order”.
In this lecture, he discusses that the current capital system which was led by the US and UK, can no longer be left safely to their own devises and that free capital markets have become a scenario of the past.
Evaluating this lecture, two themes seem to emerge, which questions the future of capital markets as we know it, namely.
- The credit crisis showed that free markets need to be regulated and that the finance “agency theory” can be seen at the core of the current problems. Though note that the issue here is that regulation lies with the sovereign state and questions if we can build global regulations to sustain global capital markets. Will China, India or other countries be prepared to adapt to global standardised regulations, will these regulations serve their economies the same way as they should for more western markets and western financial structures?
- Our global world has become more risky (which investor at core do not like) due to increased global needs. These can be summarised as :
- Natural Resources: The search by governments for natural resources such as gas and oil to sustain their economies and future growth.
- Energy security: the increasing need of energy by the consumers which is expected to be delivered by their sovereign states.
So can markets still be free if the sovereign states intervene either through protectionist measures to support their own economies or regulatory measures!
But, how does this relate to our current Finance theory, tools and techniques?
- Does EMH or the Efficient Market Hypothesis still hold?
- Is the risk free rate still risk free, and will all sovereign states triumph in this new global order?
- Do we have to revise the equity risk premium up or down in the new global order and for which sovereign states?
A lot of questions emerge on how finance theory will change from this new world order, one thing for certain is that more active research will be needed matching global trends with global issues to steer the organisation through changing markets.
