What Global Investors Should Learn from the Olympics
Geopolitics may shape who shows up to compete, but it’s still speed, strength and endurance that win gold
It's a magical pageant of shared humanity and a stunning display of individual grit. But amid a world of historical geopolitical shifts and sudden crises, the 2024 Olympics also offer an important reminder to focus on what counts.
For the 10,500 athletes gathering in France (and Tahiti) to compete in 32 sports, it’s important to know that Russia won’t be sending a basketball team because of its brutal invasion of Ukraine. But the winning basketball team still has to sink the most shots, and the gold medal sprinters still need to deliver the best time. In much the same way, investors need to track the prospects for escalation in the Middle East or the risks of a fresh trade war, but their returns still depend primarily on the discounted cash flows to their portfolios.
These magnificent games offer plenty of distractions, whether it’s the dazzling opening night ceremonies or the railway sabotage earlier that day. It’s also hard not to want to believe Tony Estanguet, president of the Paris 2024 Organizing Committee, who told the assembled athletes they “will be sending a message to the whole world: that there is a place where people of every nationality, every culture and every religion can live together. You’ll be reminding us: it is possible.”
But what’s possible in a highly secured Olympic Village on the outskirts of the French capital isn’t easy to replicate in a world straining under the pressures of poverty, dictatorship and increasingly deadly arsenals. And with the tectonic plates of geopolitical power shifting so fast you can almost hear them, these Games cannot but reflect some of the real-world conflicts.
Beyond the exclusion of the Russian and Belarusian teams, there are the 37 athletes on the Refugee Olympic Team effectively representing the world’s 43 million refugees who have been expelled from their homelands without a new country to adopt them. South Korea’s team was mistakenly introduced as North Korea’s in the boat parade of athletes, reminding everyone of how much relations have deteriorated since the 2018 Games in PyeongChang when the teams marched together.
There is also naturally the Great Power politics in the inevitable Medal Count with China holding the most gold medals at the halfway point, but the United States ahead if you count silver and bronze, too. And, of course, there is the troubled host country, which hopes that 19 days of uninterrupted competition will help everyone forget, at least briefly, that its recent elections threaten paralysis and stagnation for all Europe. (Another European host had its own political agenda just before the outbreak of World War II.)
But the headlines keep coming: a prisoner swap with Russia, another Iranian threat of retaliation against Israel and still more twists in the American election campaign. China’s economy looks stuck even as its diplomatic ambitions rise. The United States seems intent on tearing itself apart. Japan and Europe are struggling to take a greater hand in their own security. Then there are the combined challenges of addressing climate change and managing artificial intelligence. The world coming into view for the next decade looks decidedly different from the one any of us studied in school.
Still, it’s hard to argue that the scope of change is unprecedented. Indeed, one prominent measure of geopolitical risk suggests that news reporting on wars, threats and terror is not significantly higher when compared to the 20th century. Fraught as they are, today’s uncertainties still do not rise to the levels of two world wars, the collapse of Communism or 9/11.
Source: https://www.matteoiacoviello.com/gpr.htm
Given instant news cycles, it may seem that more crises flare up than before. There are shocks, whether from Houthi attacks in the Red Sea that trigger oil price spikes or naval confrontations between China and the Philippines over the Second Thomas Shoal that drive a brief flight to the safety of dollars and gold.
But the crises tend to fade almost as quickly as they disappear. Disruptions to Red Sea oil shipments are worrying, but the real question is how long they are likely to really last. Trade between the United States and China is becoming more expensive and unpredictable, but most of what we sell each other continues to flow.
With this in mind, it’s easier to understand that the real value of an investment portfolio remains exactly what the textbooks teach: growth, inflation, sales, and profit margins. The geopolitics may affect the risks to their returns from time to time, but most of the value is in the bond issuer’s creditworthiness or the equity’s growth prospects.
Even at the heart of Olympic drama, the medalists are never confused about what delivers victory.