RECAP: 2018 FOX Family Office Forum


A World of Increasing Risk – Are We Whistling in the Dark?


Yung-Yu Ma, Ph.D., Chief Investment Strategist, BMO Wealth Management, CTC | my CFO

Session Description: 

While most indicators predict a healthy economy in the near future, the inevitable downturn lurks ominously on the horizon. Tension with Russia and China, as well as the threat of renewed violence in the Middle East creates warranted anxiety among investors. The landscape of risks investors and family offices face continues to evolve. Some risks may play out slowly over years or decades, but even those discussed daily in the media could play out in different ways. A leading industry expert examined four sources of risk around the globe – environmental, economic, geopolitical, and cybersecurity – and discussed the underlying sources, and prudent positioning in light of these risks.

“These risks are not linear in nature. There is a tipping point and some risks can put you over the edge and out of business. It is important to consider risk in a multifaceted way, where a set of moderate risks collectively could cause a problem.”
- Yung-Yu Ma
Key Takeaways: 
  • Seven economic risks were identified; taken individually they pose a moderate risk but occurring in concert could pose a more substantial problem. Economic risks included: Inflation and Fed hawkishness; rising interest rates, profit margin pressure from wages, stretched consumers, declining equity valuations, China slowdown, and unsustainable growth.
  • Economic risks: Beginning to experience inflationary pressures in wage growth and interest rate increases, but equity markets are coming to terms with rising rates and interest worries and have recalibrated to a more neutral expectation. Structural forces such as interest rates, availability of information, shareholder protections, passive investing, market liquidity, and demographics are all influencing equity valuations.
  • Geopolitical: The current U.S. trade war with China may be the beginning of increasingly difficult relations with that country. The Chinese have long viewed the U.S. as hostile to its interests, and the U.S. may simply be playing catch-up in this regard. It is difficult to know what the U.S. end game is in the tensions over trade. It may be a push to focus on bilateral deals, or potentially to leave the World Trade Organization.
  • Environmental: Climate change is driving costlier weather experiences, with some theories indicating a warmer climate will lead to more intense hurricanes. We are seeing greater scientific consensus that droughts and flooding will be more severe and cause greater damage than has been previously experienced. Densely populated coastal regions are especially at risk, and many are unprepared for catastrophes and are lacking in adequate insurance. The cost of reinsurance following significant weather events is also seeing significant increases.
  • Cybersecurity: Experts estimate cybercrime damages will reach $6 trillion annually by 2021, leading many to increase enterprise security budgets. McAfee saw a 59% increase in ransomware in 2017 and a 35% spike in the 4th quarter alone. Security training is the best line of defense against cybercrime as the human element is the most vulnerable to phishing and social engineering – efforts to coerce people into providing access or information to bad actors.

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