Societe Generale - Global Markets Conference

Yann Garnier, Head of Sales for Global Markets, opened the conference, highlighting the concrete steps taken by his division to strengthen its product offering beyond Derivatives, especially in Cash Equity – the JV with AllianceBernstein - and along the Credit space. He highlighted four themes for the day:

1. The fight against inflation
2. Geopolitical uncertainty
3.  The urgency of the climate crisis
4. The impact of AI on the economy

Keynote address

In the conference’s keynote speech, Jean-Claude Trichet, former President of the European Central Bank (2004-11), explained the changed global inflation environment. He said that a long period of very low inflation had led people to believe that this was “for eternity”. Of course they were wrong. Instead a combination of 8 factors led to the return of inflation:
1. Post-Covid consumption surge coupled with constrained supply
2. A delay between the resurgence of inflation and recognition of that fact
3. 10+ years of an expansive monetary policy
4.  A very accommodating fiscal policy
5.  The changing nature of globalisation following concerns about extended supply chains
6. The changing nature of labour’s bargaining power
7. The Green Transition as a driver of inflation
8. Rising geopolitical tensions

In a subsequent “fireside chat” with Anatoli Annenkov, Société Générale economist in charge of the Europe Central Bank, Trichet said a positive consideration was that, unlike during the two oil crises, today we had a definition of price stability (2% annual inflation) that was shared by the four major central banks: the Fed, the ECB, the Bank of England and the Bank of Japan. He described this as the most important change in the international system since the dismantling of the Bretton Woods system.

Asked how far markets impact ECB policymakers, Trichet said that the ECB did not want to be trapped. Core inflation is proving stickier than overall inflation, and the ECB needs to preserve its credibility. 
Replying to a question about the effect of structural factors on Europe, Trichet speculated on the need for a “Hamilton moment” in Europe, that would mark a big step towards a more federal Europe at the monetary level.

How to navigate geopolitical risk in 2024 and beyond

Tina Fordham, geopolitical strategist and the founder of Fordham Global Foresight, began by saying that people used to think that geopolitical risk was something that happened a long way away. Now they were recognising that was not true. She defined geopolitics as “what states do to project power beyond their borders”, whether militarily or by other means such as cyber-attacks.

Fordham rejected the common hope that we might return to “normality” in the sense of life before the Global Financial Crisis. In fact, the period between the fall of the Berlin Wall and the GFC (1989-2008) was abnormal, and the most peaceful and prosperous period in human history. She said that too often audiences are closed to ideas that they don’t want to hear and called for investors to open their minds to a whole range of risks.

Among those risks is the increasing number of conflicts. One result is that migration is on the rise, prompting a rise in populism. There are buffers such as central bank liquidity and US energy independence, but we should expect a decade of disruption rather than a return to that elusive normality. The change in the international system from having a sole superpower (the USA) inevitably meant a more volatile situation, with middle-ranking powers such as India and Saudi Arabia boosting their influence.

Turning to the upcoming US presidential election, Fordham reminded the audience that in the absence of a clear winner, the election uncertainty would not necessarily end with the election day.
She ended with a call for “zeitgeist leadership”, meaning the ability to manage through complex times, quoting Louis Pasteur: “Fortune favours the brave, but chance favours the prepared mind.”

Panel discussion – investing when the only certainty is uncertainty

The CIO panel began was chaired by Kokou Agbo-Bloua, Global Head of Economics, Cross Asset & Quant Research at Société Générale. It began with a discussion about the August 2024 crash. Was it a storm in a teacup or a warning signal for risk assets?

Stephen Yeats, Global Head of Fixed Income Beta Solutions/UK Head of Investment at State Street Global Advisors, said that the crash had been a storm in a teacup, but also a  warning about market volatility, which is here to stay - a development he saw as healthy. Looking to explain the crash, Francesco Martorana, Group CIO at Generali, argued that with hedge funds accounting for over 50% of secondary market activity, liquidity was thinner today. Vera Fehling, CIO Western Europe at DWS, said that a difference with March 2020 was that earnings had not been in danger. 

On the outlook for inflation, Simona Paravini-Mellinghoff, Global CIO of Solutions at BlackRock Multi-Asset Strategies and Solutions, expects to see medium-term inflation above 2% thanks to structural issues, in particular the rewiring of the global supply chain and the demographic issues of an aging population. Martorana sees inflation medium-term as volatile thanks to the supply chain issues and the impact of geopolitics in the form of tariffs and M&A restrictions.

Yeats took a more positive view, arguing that the majority of the job on inflation was done, although a fiscal stimulus following the US election was possible if unlikely. Fehling argued that it was easier to make the case that inflation was under control in reference to Europe, partly because the supply problem was over and economic activity was so lamentable! In the US however, she felt that there was further to do.
Turning to the economic outlook and portfolio construction, Agbo-Bloua asked the panel which assets they favoured.

Fehling nominated European equities over US equities because the former are overly cheap. Martorana was more cautious about Europe as it lacks the unified capital markets of the US. Paravini-Mellinghoff  favoured risk assets, in particular private markets which offer exposure to the much larger number of unlisted companies in the economy. Yeats liked risk, especially US equity risk.

The panel ended with a discussion of what kept the panellists awake at night. As Agbo-Bloua said, quoting boxer Mike Tyson, “everyone has a plan until they get punched in the face”.
For Martorana his concern was the wake-up of bond vigilantes on sovereign debt. Fehling highlighted the problems that democracies have in keeping up the decision-making speed of autocracies. For Paravini-Mellinghoff it was the failure to equip the next generation with the skillset to thrive. Ending on an optimistic note, Yeats hoped that the recent volatility would equip investors to think and to profit from the opportunities offered by dislocations

Climate transition financing in emerging markets: an economist’s perspective

Francois Bourgignon, former Chief Economist at the World Bank and Professor at the Paris School of Economics, discussed the role of international public finance in relation to climate transition in developing countries.

The commitment of US$100bn/year by 2020 from developed economies was first made in 2009 as an incentive to developing countries. The aim was to avoid freeloading by developing nations, but at the same time there was an element of social justice, to prevent the World’s poor from carrying the burden of financing climate transition. That target was achieved by 2022, but there was doubt about the real contribution and the capacity of this support to help developing nations reach Net Zero by 2050. It was also the case that the agreement was non-binding on the developing economies.

Bourgignon then explored the need to isolate this sort of mitigation-oriented climate finance from development finance. One danger is that climate finance could crowd out development finance, in particular Official Development Assistance. There are also problems in measuring climate finance flows. 

In conclusion, he noted that these estimates include a sizable dose of bargaining, but it cannot be denied that the effort to be made is considerable. Which makes it all the more important to have a funding system that meets basic economic efficiency criteria while pursuing the double objective of climate and development.

A short introduction to Bernstein

Albert Loo, Head of Société Générale Global Markets, UK, and Robert Van Brugge, CEO of Bernstein, introduced the firm as a new champion in cash equities. Société Générale and AllianceBernstein created the JV in April 2024.
In a US equity market where almost all the firms active in 1975 have disappeared – notable exceptions being Morgan Stanley and JPMorgan – Bernstein has survived, a success that Van Brugge attributed to its long history of fundamental analysis by specialists from industry, in the form of its famous “black books”. This is an approach that the firm continues, as exemplified by Sara Russo, who previously worked at ARM and who presented in the next session.

AI – myth or game-changer?

Sara Russo, Senior European Semiconductors Analyst at Bernstein, summarised the history of semiconductors as a story of specialisation. Looking ahead, she said that in a market expected to double by 2030, the various end-uses of the product would benefit different companies.
Etienne Guibout, Deputy Head of AI at Société Générale , is one of the main people responsible for rolling out AI within the Bank. He defined AI as “a program that performs tasks that require human intelligence” and gave three examples of the potential for AI to impact the Bank’s global markets activities: as a trading assistant, credit recommending, and document processing. He added that generative AI is good at performing various categories of tasks that are embedded in bank processes.

A la carte Workshops

Over the rest of the afternoon investors were able to attend 13 workshops led by a variety of experts on subjects ranging from Quant Investing, through Macro Thematic Investment and Public and Private Credit, to Exploiting Data for Insights. Societe Generale specialists shared trading ideas, for example looking at the practical quant investing using AI. There was also a session on UK Insurance: Evolution and Innovation in Matching Adjustment Assets.

Closing statement

After the workshops, Hatem Mustapha, Co-head of Société Générale Global Markets, closed the event by highlighting the range of valuable insights and perspectives provided over the day. He emphasized Societe Generale’s commitment to its clients across flow, solutions, and financing activities as evidenced by its own innovations and partnerships, such as Bernstein. Quoting Peter Drucker, he concluded by saying: “The best way to predict the future is to create it.”