Giselle Roux: The best investments for the next decade

"It drags people into thinking that there is no fundamental change that is taking place. It implies that there is a predictable cycle of when something goes up or down - that something naturally will occur afterwards that mean reverts it back to where it was," Giselle explained. 

"There is a fundamental change in financial markets with rates, inflation, and growth dynamics. And therefore, I wouldn't pay too much attention to what has happened in the past. I'd focus on what could happen in the next five to 10 years." 

Giselle believes the secret is bearing in mind who is providing the information that you are consuming - as well as what the intention could be behind sharing these insights. As they say in the investment world, there is no such thing as a free lunch. 

"Unsurprisingly, fund managers will talk about the way they invest and what they're invested in. Their outlook is essentially predisposed to the way they've actually put money to work," she explained. 

"The vast majority are mandated to be fully invested and therefore simply have to find what they think, frankly, might be the best of a bad lot. It's very rare for a manager to say, 'I think the market's horrible. I'm not going to put money to work.' So, you have to just bear in mind the kind of information that you're getting." 

Obviously, no one really knows the future. And thus, much of what you may read, listen to or watch will turn out to be incorrect. 

"It's fantastic to listen to or read all this stuff, but it doesn't mean it's a good idea just because so and so said. So think about what they really mean and where they might be wrong," Giselle added. 

Why tightening credit should be on your radar 

Giselle believes the impact of credit and liquidity on the economy and investment markets isn't something readers would normally pay much attention to. However, credit availability can have a big impact on driving flows in various asset classes. 

"With interest rates having gone up at the fastest pace in decades... It is an extraordinary repricing of the cost of money for businesses and households as well," Giselle said. 

This also has an impact on lending and credit. 

"There is a withdrawal in the availability of credit, as people are more cautious about giving money to businesses - given that we don't know how economies are going to unfold, and how the cash flows of these businesses will cope with repaying the debt, nevermind refinancing the debt at the end of the term," Giselle explained. 

"Bear in mind that with the US regional bank problems, there was a general tightening of liquidity. But that was just one notch in what is likely to be an ongoing recalibration of how much credit actually flows into the corporate sector." 

"The companies that need to borrow a lot given the nature of their business, which is plenty of good companies - think Transurban (ASX: TCL), which by its nature is a very leveraged company," she said. 

"Those kinds of companies may have taken out a lot of debt long term, but they will still need to think about what the pricing of debt is going to be." 

It also wouldn't be surprising if companies came to the market to raise capital to repay these debts over the next 12 months, she added, which would be diluting for shareholders. 

The impact of years of building the world's debt 

Not only did governments take on huge amounts of debt during the COVID crisis, but today, thanks to higher interest rates, the cost of that debt is now significantly higher. 

For some context, global debt is now somewhere in the vicinity of US$305 trillion – that is US$45 trillion higher than pre-pandemic levels. This is so much money that I honestly can't even fathom it. 

In the US alone, national debt currently sits at more than US$32 trillion. That's US$95,879 per citizen (of which there are nearly 337 million). Australia's debt is a far more palatable $1 trillion. That's $40,490 per person. 

"Interest costs will start to become a fiscal drag that governments will have to consider in how they spend throughout a budgetary phase," Giselle said. 

"We've seen budgets - state governments here, even the Federal Government, and even in the US - becoming less inclined to just grow their deficits at infinitum. Government spending does matter.

"I really struggle to think how this can be drawn out forever. I don't want to say Japan's always the story, but it is. Countries with very high debt levels statistically don't do economically well."

Global growth likely to slow 

On the constructive side, Giselle believes the continuing development of technology (with AI the new iteration of that progress), and spending on energy and the grid are likely to help drive global growth over the next decade.

She also believes that deglobalisation may be positive for global growth going forward. However, there are big-picture issues that still remain challenging. 

These include a slowing Chinese economy, unfavourable demographics (i.e. an ageing population), and global debt levels (as discussed above) - all of which are likely to be substantial hurdles that will keep growth below levels experienced over the past three decades. 

"The optimist would say that the whole transformation of energy is akin to China. It's quite possible that's true. If globally everybody transforms their energy systems, maybe... that could actually be the biggest driver of economic growth in the next five to 10 years," Giselle said.