Macquarie's Viktor Shvets rewrites rules of investing, warns world on brink of upheaval

Investors should forget about conventional economic and capital market cycles after central banks created five to ten times more money supply than needed, according to Macquarie strategist Viktor Shvets.

Speaking at the Impact Investment Summit in Sydney on Wednesday, Shvets said technological change sandbagged by excess capital means buying and selling stocks based on their mean reversion to price-earnings ratios is now a redundant strategy. 

"One of the things I keep highlighting is that conventional economic cycles are largely gone, conventional capital market cycles are largely gone. They don't exist anymore," says Shvets. 

"So, the whole idea of mean reversion, which is so important in investment analysis, it no longer functions because it relies on cycles to determine what you should do at a point in a cycle and what you should do at another point in the cycle."

Instead, Shvets said the new investment world of central bank-sponsored markets means a better strategy is to focus on themes like robotics, energy, biotech and healthcare that will be the productivity winners from artificial intelligence. 

While the ongoing separation between share market winners and losers accelerates as technology and financialisation in markets combines with massive capital investments to help winners improve productivity. 

"So, try to avoid mean reversion, try to avoid looking at a price to earnings ratio in a standard range as I argue we don't really know what that mean is anymore," says Schvets. 

"Instead, I tend to focus more on localisation, I tend to focus more on thematics. One of the most obvious ones is the replacement of humans. Another one, unfortunately, is social discontent and wars."

Bond market dislocation, chaotic geopolitics

Debt and bond markets have also been distorted by an excess money supply as credit spreads between investment grade US treasuries and risky corporate junk bonds narrowed to their lowest since 2005 in October 2024.  

According to Shvets, the historically tight spreads on debt over the last 12 months are generally a symptom of more money chasing returns across capital markets. 

The Ukraine-born strategist also suggests the Western neoliberal consensus of free market liberalism backed by immigration that has existed from the 1980s to today is now under threat and likely to change in a period of uncertainty for Western investors. 

This is partly a consequence of the rising inequality between owners of assets such as property and stocks, versus workers reliant on wages to cover rising day-to-day expenses, as the world heads to an unclear alternative system of governance. 

By comparison, Shvets says the world faced a similar disorientation and crossroads in the 1930s as fascism, communism, democracies, and anarchists all competed for power. 

Today, he says around 70% of the world's population live under autocracies, with only around 30 fully fledged Western liberal democracies left as a warning that the West is declining. 

"If you go back to 2011 for example, there were more than 70 countries that were democratising, today there's almost none," he says. "If you think of 2011, 50% of the population lived in some kind of autocratic system. Today, it's more than 70% in that category and it continues to increase."

How the world ends up over the next couple of decades is unclear, as it could be anything between the catastrophic wars of the 1940s, or a bumpy transition to a more autocratic society where government is forced to play a bigger role in ruling and supporting a society upended by the job losses from robotics, according to Shvets. 

A future of a universal basic income paid by Western governments to the unemployed masses was not even ruled out by Schvets, who said the United States' neo-techologists Elon Musk and Peter Thiel both advocated this as a solution to the coming upheaval.