Geopolitical risks: The popiah seller mired in uncertainty

This is the final of a four part Coffee Conversation series brought to you by CIMB where its private banking economist - and foodie - Song Seng Wun makes simple even the most complex of economic brews.

Interviewer: The world is closely watching the US elections, how much of an impact could the results have on Singapore's growth?

Mr Song: There is huge uncertainty about the outcome of this election and what it will mean for the American economy. A divisive election campaign could affect consumer sentiment and put further investments by businesses on hold. With consumption a key driver of US growth, there is a risk that this uncertainty in the world's largest economy could ripple through the world economy, negatively affecting global growth. As Singapore is an export-oriented economy and a service provider, we will also feel the knock-on impact of this weakened sentiment.

Interviewer: What are the other global uncertainties that could undermine growth next year?

Mr Song: What we worry about are things that might affect consumer confidence because this ultimately affects how consumers spend and how businesses invest. The UK's vote to leave the European Union (EU) is one big uncertainty that will take several years to unravel. An even bigger uncertainty is whether more European countries will leave the EU. Already, the Italian referendum later this year has raised fears of increased political uncertainty and the country's possible exit from the euro.

Take for example, the world's economy as a large food court. One that is well run with food operators working closely together, can bring in more business. By contrast, one where stallholders are constantly fighting each other will disrupt sales. In such a chaotic business environment, stalls will not survive and the food court will fail. A popiah seller who used to sell 100 popiahs a day might soon have to shut his business. Singapore will not only feel the impact as a service provider to the food court, but also feel the pain as a consumer, as the quality of the popiah - including its ingredients like lettuce, turnips and eggs - suffers. Similarly, local consumers might be affected as the quality of imported goods drops in such a messy business climate.

Interviewer: How should I manage these risks as an investor?

Mr Song: To limit volatility in their portfolios, investors can consider diversifying across asset classes and rebalancing their portfolios periodically. A well-diversified portfolio is less risky as its performance does not hinge solely on how well one asset class does. This is similar to the importance of keeping a balanced diet. While red meat provides us with protein, too much of it can increase the risk of heart disease. It is better to alternate it with other meats such as poultry and fish. At the same time, always remember to take your fruits and vegetables!