Geopolitics most dangerous since WWII, Lord Rothschild warns investors

World GDP grew at “a disappointing and uneven rate in 2014” following six years of monetary stimulus and extraordinarily low interest rates, the chairman of RIT Capital Partners, Lord Rothschild said in the investment trust’s 2014 annual report.

He also described stock market valuations at near an all-time high with equities benefiting from quantitative easing. The value of paper money has been debased as countries sought to compete and generate growth by lowering the value of their currencies, according to Rothschild. The euro and the yen depreciated by over 12 percent against the US dollar during the course of the year and sterling by 5.9 percent. The unintended consequences of monetary experiments on such a scale are impossible to predict, the banker says.

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“In addition to this difficult economic background, we are confronted by a geopolitical situation perhaps as dangerous as any we have faced since World War II: chaos and extremism in the Middle East, Russian aggression and expansion, and a weakened Europe threatened by horrendous unemployment, in no small measure caused by a failure to tackle structural reforms in many of the countries which form part of the European Union,” the 78-year old businessman said.

Meanwhile, the 2014 assessment of the world by the chairman of RIT Capital Partners is not so gloomy compared to his statement about the previous year. The slowdown in China's growth and a possible over-valuation of shares were considered the main challenges for the world by Rothschild then.

Rothschild believes equities may continue to be the destination of choice for investors despite the backdrop of zero or even negative bond yields. On a more positive note he said that the majority of companies are reporting profits exceeding forecasts together with steady earnings growth. “In Europe, the combination of a more competitive euro, an aggressive program of quantitative easing and the yields available on equities, may well lead to even higher valuations,” the banker said in his statement.

RIT Capital Partners reported a 9.5 percent return over the year, with the share price up 13.3 percent as for 31 December 2014. The company listed on London Stock Exchange in 1988 and has doubled its net asset value and share price over the last ten years.