Chairman and Chief Executive Officer of Morgan Stanley James Gorman speaks during the Global Financial Leaders’ Investment Summit at Four Seasons Hotel in Hong Kong on Nov 2, 2022. (ANDY CHONG / CHINA DAILY)
Central banks will further tame inflation, but world investors need to adjust to “a new reality,” two heads of US-based international investment banks said on Wednesday.
James Gorman, chairman and CEO of Morgan Stanley, said the global economy has been plagued recently with nothing but abnormality
The prediction came during the panel discussion “Navigating Through Uncertainty” at the Global Financial Leaders’ Investment Summit, organized by the Hong Kong Monetary Authority.
James Gorman, chairman and CEO of Morgan Stanley, said the global economy has been plagued recently with nothing but abnormality. The economic system in the past decade has suffered the two most formidable shocks it has seen in the past 70 years, he said.
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The global economic misery has its root in the financial crisis of 2007-08, which led to a decade of “stimulating policy, monetary policy, and effectively zero interest rates around the world,” Gorman said. Then came the COVID-19 pandemic, reducing global GDP 30 percent during the second quarter of 2020, he continued.
Therefore, it’s not surprising that “interest rates are going up. They’re abnormally low, and reserve banks around the world are trying to get them back to some level of normality and even higher for a period because of the rise in inflation”, Gorman said.
David Solomon, chairman and CEO of Goldman Sachs, said that if experience is anything to go by, it’s that a transition necessitates a change.
“Market participants and capital allocators need time to adjust to that new reality. We've gone through a decade of very easy money, very accelerated asset price appreciation. … You were generally rewarded for deploying capital and deploying capital aggressively. Now, you are not being rewarded for that.”
Chairman and Chief Executive Officer of Goldman Sachs David Solomon speaks during the Global Financial Leaders’ Investment Summit at Four Seasons Hotel in Hong Kong on Nov 2, 2022. (ANDY CHONG / CHINA DAILY)
Gorman agreed. “My gut is the central banks will, in aggregate, tame the inflation. It’s highly probable that we will get back to the 1 to 2 percent inflation we enjoyed before the crisis, more like 4 percent in the next four years. And we’ll have to deal with that,” he said.
Lessons learned in the past could provide a clue about the path ahead when similar afflictions strike again. Similar periods in the past took two to six quarters to rebalance, Gorman said.
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Solomon said the world economy is undergoing a “rebalancing period”. While the economy is still rife with a significant amount of uncertainties on the eve of 2023, one latches onto the trajectory of capital markets, he concluded, adding: “I think we’re in the process of that journey, and my expectations are that equilibrium will come more into balance in the coming quarters.”