4 Takeaways From Davos 2022

Summary

  • Davos 2022, the annual meeting of The World Economic Forum, came to an end with many experts painting a bleak outlook for the global economy.
  • Wall Street analysts, economists, and industry leaders agree that a global recession is likely.
  • A close evaluation of some of the topics discussed at the Davos summit reveals a few investment opportunities for growth-oriented investors.
  • Looking for a portfolio of ideas like this one? Members of Leads From Gurus get exclusive access to our model portfolio. Learn More »

Waving flags at the congress center in Davos in Switzerland

Robert Buchel/iStock Editorial via Getty Images

The World Economic Forum's 2022 annual meeting in Davos came to an end on May 26. At the 4-day event, many business leaders raised concerns about macroeconomic and geopolitical threats to the global economy, including skyrocketing inflation, supply-chain disruptions, and the Russia-Ukraine war. Although the Davos summit does not directly impact the global economy or stock prices, a good understanding of the issues discussed at the summit may help investors gauge a measure of where the global economy is headed in the next couple of years, which in turn would help investors make better investment decisions.

Davos topics 2022

Over 4 days, business leaders, policymakers, and government officials discussed several economic, technological, and geopolitical developments that could shape the outlook for the global economy in the next few years. Below are some of the important topics discussed at the event this year.

  • Future-proofing global health systems.
  • The future of globalization.
  • Outlook for energy amid the European crisis.
  • Responding to the humanitarian crisis in Ukraine.
  • Averting a global food crisis.
  • Re-igniting growth in the travel and tourism sector.
  • Central Bank digital currencies.
  • A reimagined global tax system.
  • Accelerating sustainable value chains.
  • The future of the gig economy.
  • The possibilities of the metaverse.

In the following segments, I will discuss some of the conclusions that I drew after carefully listening to speakers at the Davos summit this year.

Geopolitical tensions will continue to impact stocks

Speaking at the Davos summit, Ukraine Foreign Minster Dmytro Kuleba said that peace talks with Russia are going "nowhere" at the moment and that further escalations of tensions are very likely given that Russia's attacks in the Donbas region are similar to the attacks seen during World War II. Ukraine is pushing EU members to support the country's EU candidacy status as well, and if successful, it would be a matter of time until the EU is forced to play a more active role in the Russia-Ukraine war.

Addressing business leaders on the subject matter, George Soros said:

The invasion of Ukraine didn't come out of the blue. The world has been engaged in an increasing struggle of two systems of governance - open society and closed society....The invasion may have been the beginning of the third world war and our civilization may not survive it.

Inflationary pressures are already flaring up concerns for economic growth in many parts of the world, and the ongoing conflict in Ukraine is only going to worsen these fears. Russia is one of the key players in the global economy, and as illustrated below, the United States and China are major trade partners of Russia in several key business sectors.

Exhibit 1: Russia's key exports and trading partners

Russia's key exports and trading partners

European Parliament

Russia and its trading peers are likely to feel the pressure of economic sanctions imposed on the country in light of its invasion of Ukraine, and this is not a good outcome for consumers and the global economy.

Energy prices have risen dramatically since Russia's attacks on Ukraine started on February 24, and oil prices were anyways trending higher in the 12 months preceding the attack due to the recovery of the global economy from the pandemic lows and supply shortages. As illustrated below, households in many EU countries are already feeling the pressure of higher energy prices.

Exhibit 2: The impact of the recent energy price surge on household budgets

The impact of the recent energy price surge on household budgets

OECD Ecoscope

Arguably, higher energy prices will lead to lower discretionary spending eventually, which is again a negative development. To make matters worse, the European conflict has resulted in supply chain disruptions and global trade woes as well. In combination, these negative developments will keep many U.S. stocks under pressure, including retailers, cruise operators, and even tech companies with exposure to Russia.

Higher oil prices resulting from these geopolitical challenges, however, could help oil companies report stellar earnings growth this year, assuming recessionary fears will not materialize.

Cryptocurrencies will face regulatory pressures

The rise of Bitcoin and other cryptocurrencies in the last few years was fueled by the growing importance of a decentralized payment system that gives power to consumers. Regulators, however, argue that a fully decentralized payment system will only promote illegal activities and be detrimental to the overall health and safety of society. Cryptocurrencies have already made it into the big leagues, which is evident from the significant time spent discussing the outlook for digital assets at the recently concluded Davos summit. Crypto enthusiasts, however, might find it disheartening that many business leaders, industry experts, and policymakers believe cryptos need to be regulated to make the most of the technology. I also believe this is the only viable way to ensure the growth of the crypto economy.

Here are a couple of interesting comments on cryptocurrencies made at the Davos summit.

When somebody promises you a 20% return on something that is not backed by any assets, what would we normally call this? We would call it a pyramid. In other words, this is a pyramid in the digital age. Bitcoin may be called a coin, but it's not money. A prerequisite for something to be called money is to be a stable store of value. - International Monetary Fund Managing Director Kristalina Georgieva

Cryptocurrencies are not currencies at all. They are speculative assets, the value of which changes enormously over the course of time, and they present themselves as currencies, which they are not. We should call a spade a spade. An asset is an asset, it has to be regulated as such, has to be supervised by the asset regulators and supervisors, but should not claim that it is a currency. It is not. - European Central Bank President Christine Lagarde

Many business leaders also highlighted the importance of digital assets but why crypto cannot survive in its current form for much longer. Regulatory intervention is on the cards, and in the most likely scenario, I believe Central Banks around the world will promote their own stablecoins in a bid to regulate the crypto industry.

Cryptocurrency prices are highly volatile, and it seems futile to predict where prices are headed. From a fundamental perspective, however, it would be reasonable to conclude that crypto prices will remain under pressure despite short-term booms until there is more regulatory clarity.

The metaverse will be the new face of the Internet

The World Economic Forum unveiled a virtual Global Collaboration Village to focus on leveraging the metaverse technology to impact positive change on a global scale. In collaboration with Accenture plc (ACN) and Microsoft Corporation (MSFT), WEF will develop this virtual platform to create better public-private partnerships to support the adoption of the metaverse.

The launch of this new platform is a testament to the growing importance of the metaverse and a confirmation that business leaders and policymakers view this technology as an opportunity to make a meaningful impact on a global level. Answering a question by WEF Founder and Executive Chairman Professor Klaus Schwab, Microsoft CEO Satya Nadella said:

We, along with Accenture, cooperated using a mesh platform, built this exhibit for the 1 trillion trees, which is pretty phenomenal. If you go visit it, I think what you come out with is a deeper appreciation of how collaboration can be enhanced when you have that core presence, when you are together in a physical space, which you immersively are able to feel.

According to Mr. Nadella, the collaboration with Accenture and the continued growth of the metaverse aided by multi-billion-dollar investments by tech giants will take hybrid work to another level, which should open many new doors for the growth of a few business sectors, including freelancing solutions providers and social media companies.

I have always been bullish on the prospects for Meta Platforms, Inc. (FB), and the recent decline in the stock price of Fiverr International Limited (FVRR) has made it an attractive bet as well. These two companies, in my opinion, are well-positioned to benefit from the growing metaverse economy.

Recession fears are here to stay

From Wall Street analysts to economists, many industry leaders expect a global recession sooner rather than later, and some analysts have gone on to say the U.S. economy will enter a recession by the end of this year. At the Davos summit, this possibility was discussed in detail, and many thought leaders agreed that a recession is very likely given both macroeconomic and geopolitical pressures we are seeing today cannot be addressed easily. IMF Managing Director Kristalina Georgieva, Co-Founder of The Carlyle Group David M. Rubenstein, Citi Chief Executive Officer Jane Fraser, and the Governor of the Central Bank of France François Villeroy de Galhau are a few of the experts who claimed that a recession is very much on the cards.

Takeaway

Davos 2022 came to an end with many business leaders questioning the outlook for the global economy, but long-term-oriented investors focused on growth opportunities should ideally consider these challenging times as an opportunity to invest in high-quality companies at cheap prices. This is what we are doing at Leads From Gurus, although I must admit that the lackluster market performance has already shaken the faith of many investors. One can never be certain of what Mr. Market has to offer in the short run, but earnings should dictate terms over long-term stock price movements, which gives all the more reason to remain invested in stocks.

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This article was written by

Dilantha De Silva profile picture
9.39K Followers
Actionable ideas and model portfolios to beat the market

I am an investment analyst with 7 years of experience in financial markets. I specialize in U.S. equities and incorporate a top-down approach to identify developing macro-level trends and the companies that would benefit from such trends. I am a strong believer that the best investment opportunities could be found in under-covered equities. Please click the "Follow" button to get timely updates on new articles.

I am the founder of Leads From Gurus, a Marketplace service on Seeking Alpha that focuses on uncovering alpha-generating opportunities.

I currently work with leading financial publications including Refinitiv, Seeking Alpha, ValueWalk, and GuruFocus.

I'm a CFA level 3 candidate, an Associate Member of the Chartered Institute for Securities and Investment (CISI, UK), and a candidate in the Chartered Wealth Manager program.

During my free time, I enjoy reading.



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Disclosure: I/we have a beneficial long position in the shares of FB either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I am long MSFT and FVRR.

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