Seven Ways Our World Will Change

by Andrew Newman
in Economy
27 Jul 2009 | 0 Comments

The Global Financial Crisis has changed the financial world in ways few of us would have thought possible. The extent of the changes cannot be underestimated and we should all expect a different world to emerge.

There are seven ways the financial landscape is changing:

Expect the financial world to become more local. When fear trumps greed, emotion over-rides reason. Home is where the heart is and we should expect investors to feel safer in their own backyard for a while, as that is where they will feel most confident that their governments will protect them and their financial institutions. These institutions are also likely to prefer local counterparties.
Finance has become political. The public is looking to governments to act and politicians have shown they will not let the electorate down. We should remember that governments are local, not international, and while information and intelligence are shared around the world decisions are made at the national level.
Complexity is out and simplicity is in. Investors will increasingly want to understand fully what they are buying and where their exposures actually are. This is a reasonable expectation in normal times, let alone in this uncertain period. Many financial instruments, their underlying exposures and the leverage within them had moved beyond the understanding of those who bought them and beyond those who had the responsibility of governing the institutions that traded and marketed them. At the corporate level, companies will become more focused on what they feel they can do well and what they can adequately control and monitor.
Investors will move to what they understand. They will shift away from models and back to human beings, where their level of understanding is greater. Many models relied on past relationships between securities, markets and asset classes that do not necessarily hold today.
Innovation will be out and experience back in. The shock of the new has been painful for many investors. Funds will flow to those providers with traditional practices and experience in traditional markets. Smart will be replaced by sensible. Trust will need to be earned again by providers.
Increased transparency. Many investment products of recent years contained hidden features, such as leverage as well as security and asset class exposures, that did not align with the expectations of those who owned them. Investors will demand greater transparency, both from the companies managing their money and in the products that they market. Regulators will also demand greater visibility.
Oversight will be as important as insight. At well-managed institutions, the central importance of compliance is already embedded. Institutions, and companies, that had relegated these functions within their firms will need to redress the balance.

The above article has been sourced from FIL Investment Management (Australia) Limited.

Important Information

The information provided is general in nature and does not constitute financial advice. While we have taken reasonable care in providing this information, it should not be construed as being specific to your investment objectives, financial situation or particular needs. It's important for you to consider these matters before making any financial decision and we recommend you seek financial advice.

Seven Ways Our World Will Change

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