Investment Implications of the WEF Global Risk Report

Long Term Risks Growingly Informing Investment Strategies


The world's leading corporate executives and other mover and shakers later in January 2016 will head up to Davos, Switzerland under the umbrella of the World Economic Forum or what is frequently simply called WEF.

Among the more interesting developments during the past ten years has been the WEF Global Risks Report published a year ago for the tenth time, and it will be interesting to see this year's version.

Always a fascinating read, the 2015 report "underscores potential causes as well as solutions to global risks." 

WEF has great influence on the thinking of business leaders so it is also noteworthy that the report has a perspective on 28 different global risks in categories from economic, environmental, societal, geopolitical to technological.  The report this year also looks at drivers of those risks in the form of 13 trends, and suggests solutions.  Hence, investors would be well advised to read this report in its entirety to pick up on likely future trends that will affect revenue and strategy decisions that may well affect future business success.  The full report PDF can be found here.

Within, if you look at Table 1, you quickly see the ten most likely risks, those being, in order of likelihood:

  1. Interstate Conflict
  2. Extreme Weather
  3. Failure of National Governance
  4. State Collapse or Crisis
  5. Unemployment or Underemployment
  1. Natural Catastrophes
  2. Failure of Climate Change Adaptation
  3. Water Crisis
  4. Data Fraud or Theft
  5. Cyber Attack

All of these risks, deemed most likely, could well have implications on the stock prices of global companies especially if these issues cause supply chain disruption or otherwise upset the normal flows of commerce.

 Resilience in response to such threats rises as a measurable factor to determining companies best equipped to adapt to such changing conditions.

Table 1 also provides a look at the Global Risks with the biggest potential Impact,a different perspective, which looks at:

  1. Water Crisis
  2. Spread of Infectious Disease
  3. Weapons of Mass Destruction
  4. Interstate Conflict
  5. Failure of Climate Change Adaptation
  6. Energy Price Shock
  7. Critical Information Infrastructure Breakdown
  8. Fiscal Crisis
  9. Unemployment or Underemployment
  10. Biodiversity loss and Ecosystem Collapse


There is also an extensive perspective on the interconnected nature of these risks.  For example, unemployment can help lead to global conflict as can water shortage, etc

Also interesting is how these perspectives have changed over the past ten years of this report.

Within this report is a table showing these two perspectives of the biggest risks by Likelihood and Impact, and how those perceptions have changed.  

Amazingly, over the past few years, the 5 Risks deemed most likely are now completely different.

In 2013, these were Severe Income Disparity, Chronic Fiscal Imbalances, Rising Greenhouse Gas Emissions, Water Supply Crisis and Management of Aging Populations.  All five of these trends continue unabated if not in the wrong direction, yet the 5 most likely risks now are seen as completely different ones as above.

Basically, this simply means that extra layers of likely risk are being added to the picture, especially mounting geopolitical factors.  2014 was a year where we saw too many parts of the world reaching a crisis point and so here in the States we are arguably living in a bit of a protective bubble if these reports are at all true.

Fortunately for us, the US economy remains strong, in fact clearly the world's strongest.  We are leading on innovation and on the success of our public companies, regardless of the recent market slide in early January 2016.  

Investors overweighting the US from 2010-14 did especially well as the MSCI World was annually +10.81% on average during that time, while the S&P 500 investable through Vanguard for example, returned +15.45% to investors.  The MSCI Emerging Markets Index was only +2.11% during this same period.  Markets were relatively flat in 2015, but the averages still favor the US investor, and the recent correction is likely just markets finding their right valuation level, especially in the light of the ongoing economic challenges in China.

And as we demonstrated here, positively oriented Sustainable Investors did even better in 2014 than traditional investing at time when the US had outperformed to more recent all time highs in 2015.  

So the message is clear, the US has been showing the way once more economically, and moving towards sustainability in a positive way is also good for your portfolio and society, even while the world is fraught with peril as we speak.

We appear to live in interesting times.

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