Global leaders and business executives meet annually in Davos, Switzerland at the World Economic Forum to discuss the greatest risks facing the planet and discuss potential solutions. 

In 2023, the cost of living crisis and climate change dominated the conversation. Let’s discuss key takeaways from the 2023 World Economic Forum as well as potential solutions to help protect your investment portfolio from these global risks. 

What Is the Davos World Economic Forum? 

The annual Davos World Economic Forum brings together business and political leaders to address current global economic and social issues. 

Held in the Swiss ski town of Davos in January, the meeting brings together a select group of stakeholders and experts from business, government, civil society, media and academia to participate in discussions aimed at driving impact on pressing global issues. 

The event attracts over 2,500 delegates and hundreds of other attendees, making it one of the largest gatherings of global decision-makers.

What Is the World Economic Forum? 

Headquartered in Geneva, Switzerland, the World Economic Forum (WEF) is a not-for-profit organization founded in 1971 to “demonstrate entrepreneurship in the global public interest.” 

The Davos meeting has long been the World Economic Forum’s highest-profile event. 

Since 2020, the WEF has been guided by the principle of stakeholder capitalism, which holds that corporations should not only deliver value to shareholders, but also to all stakeholders who have an impact on the company, including employees, society and the environment.

The Davos Manifesto 

In 2020, the World Economic Forum published a new “Davos Manifesto” updating its 1973 ethics code for business leaders, authored by WEF founder and executive chair Klaus Schwab. This new manifesto is intended to guide companies in the age of the Fourth Industrial Revolution.

The document calls on companies to “pay their fair share of taxes, show zero tolerance for corruption, uphold human rights throughout their supply chains, and advocate for a competitive level playing field.” 

Who Attends Davos? 

Approximately 1,000 companies hold membership in the World Economic Forum, and members send a small number of key delegates to the meeting in Davos based on their membership tier. 

The official attendance is by invitation only. In 2022, there were approximately 2,000 delegates, including Al Gore, John Kerry, Christine Lagarde, Jens Stoltenberg and many other high-profile names. 

Davos has received criticism in the past for its exorbitant fees making it inaccessible to many stakeholders, instead acting as a summit for the global elite. This garners even more controversy when the main topic of discussion is the global cost of living crisis.                                                                                                     

The Agenda for Davos 2023 

This year’s annual meeting in Davos took place from January 16-20, 2023 under the theme “Cooperation in a Fragmented World.” 

The COVID-19 Pandemic and the war in Ukraine, along with high inflation and artificial intelligence dominated discussions this year. 

The 53rd annual event drew notable attendees such as Ukraine’s first lady, climate activist Greta Thunberg and actor Idris Elba, along with hundreds of presidents, prime ministers, CEOs and other decision-makers. 

Key Global Economic Risks: A “Polycrisis”

The World Economic Forum’s annual Global Risks Report found that the two largest short and long-term global risks are the inflation crisis and climate change. 

The report, accounting for the views of 1,200 figures across the private and public sectors, was published ahead of the Davos summit. 

Additional risks facing the globe included Russia’s war in Ukraine and the COVID-19 pandemic which had worsened the energy crisis, food scarcity and inflation. 

The Global Cost of Living Crisis

In the United States, concerns about an impending recession have led to widespread job cuts at major technology and banking firms. However, some economists and industry leaders believe that a severe recession can likely be averted. 

Current data indicates that a prolonged economic downturn is unlikely, as inflation has slowed and jobless claims remain low. Despite some sectors experiencing layoffs in the U.S., a strong labor market and declining inflation suggest that many Americans are still financially stable, decreasing the likelihood of a severe and long recession. 

Similarly, in Europe, where the economic impact of the Ukraine war is greater, a severe recession may have been avoided due to declining energy prices and China’s quicker-than-expected reopening. Additionally, Goldman Sachs has recently revised its economic forecasts for Europe to a more positive outlook.

Despite the positive outlooks of some, the majority of CEOs attending Davos have a more negative perspective. In a survey conducted by PwC, 40% of CEOs have doubts about the long-term viability of their own companies. Over 70% of CEOs surveyed by PwC predicted an economic decline in the year ahead.

Inflation has also had a negative impact on global growth, particularly in the past year when it reached its highest levels in many countries in recent decades. This has negatively affected the finances of many middle- and working-class households in the U.S. 

Although inflation in the U.S. has recently decreased, and some economists believe that it has peaked, a number of CEOs at Davos are uncertain if the easing of inflationary pressures will happen soon for consumers.

Climate Change and Green Energy 

Climate change returned as a top discussion topic for Davos 2023 with climate activists and leaders in the industry speaking on the growing need to reduce emissions. 

Activists, led by Greta Thunberg, called for the industry to stop hindering the transition to clean power, while political leaders such as Kier Starmer opposed new oil investments and Pakistani climate minister Sherry Rehman advocated for funding for loss and damage caused by climate change. 

U.S. climate envoy John Kerry emphasized the importance of money in achieving the Paris Agreement’s global warming target.

The Inflation Reduction Act, proposed by US President Joe Biden, caused significant tension between the US and Europe. European leaders at the Davos forum expressed concerns about the law’s tax incentives for American companies involved in green energy, stating that it would put European companies at a disadvantage.

Artificial Intelligence and the Metaverse

Technological innovations were also a hot topic at Davos this year, covering the Metaverse, green technology and artificial intelligence, specifically generative AI such as ChatGPT. 

As Silicon Valley executives, including the CEO of Microsoft, praised the potential of AI technology like ChatGPT to revolutionize their industries, they simultaneously announced plans to lay off thousands of employees worldwide. The high spending on cloud services by businesses was also closely examined.

The CEO of Palantir Technologies, Alex Karp, explained the reasoning for these actions, stating that “businesses are under enormous cost pressure. They need to find ways to do the same things cheaper.”

In China, Vice-Premier Liu He declared the country open for business, which was met with a positive response, but also sparked concerns about inflation and its impact on existing tensions with the United States. Credit Suisse Chairman Axel Lehmann predicted that China’s growth forecast of 4.5% may be exceeded.

One major concern brought up was that technology has the capacity to exacerbate existing global inequalities. As emerging technologies yield advancements in AI, quantum computing and biotechnology, countries that can afford them could provide partial solutions to crises. 

For countries unable to afford them, inequality will continue to grow with issues ranging from health threats, healthcare capacity, food security and climate mitigation. 

There are many leaders also concerned over the ever-pressing threat of cybersecurity breaches, as more and more information is moved to technological platforms and tech advancements allow for more advanced cybercrimes. 

Investments to Help Beat Inflation

High inflation erodes purchasing power and savings accounts’ monetary value, but it can also diminish investment returns and hurt your overall portfolio. On the other hand, there are some investments that have historically retained their value or even benefitted from high inflation, and could potentially help protect your portfolio from large downturns. 

• Read More: Who Benefits From Inflation? 7 Biggest Winners and Losers

Contemporary Art 

Contemporary, blue-chip art is often viewed as a valuable investment during high inflationary periods because it is perceived as a store of value and has a historical track record of stability.

Collectibles differ from other asset classes because they have no intrinsic value. Instead, their value is determined by how much individuals are willing to pay for them. Additionally, art tends to have a low correlation to the stock market, making it particularly insulated from market fluctuations.

Using Masterworks data, it was found that between 1973 and 1981, when inflation in the US was running around 9% annually, contemporary art market prices outpaced equities and even gold. During that time, gold averaged an annualized growth of 31.1% while the art market had an average annual appreciation of 33.2%.

The Masterworks platform has opened the art market to everyday investors by offering fractionalized shares of iconic works of fine art. 

• Read More: Has High Inflation Impacted the Art Market?

Real Estate

Real estate, particularly residential properties, is often considered as a hedge against inflation because of landlords ability to pass through the cost of inflation onto renters and consumers. 

One way to invest in real estate without directly purchasing properties is through Real Estate Investment Trusts (REITs), which have an average annual return of over 10% as per the MSCI US REIT Index. 

An MIT economics study found that retail properties are the most effective category of real estate in terms of beating inflation, while apartment buildings and industrial properties also provide inflation protection but to a lesser extent. Real estate is a popular inflation hedge because rental prices usually increase with inflation, and they provide a steady income stream from rent.

For individual investors, owning a personal home can also be a useful inflation hedge as it increases in value, and rental prices have been among the fastest rising costs during the current period of inflation. According to the Federal Housing Finance Agency, home values have seen an average annual growth of 4% since 1991.

• Read More: How Can Real Estate Hedge Against Inflation?

The Bottom Line 

The Davos World Economic Forum 2023 brought together global leaders and business executives to discuss the pressing issues of the inflation crisis and climate change. The World Economic Forum’s annual Global Risks Report found that these are the two largest short and long-term global risks facing the planet. 

Davos 2023, held under the theme of “Cooperation in a Fragmented World,” also touched on topics such as the COVID-19 pandemic, the war in Ukraine and artificial intelligence. 

These risks also have the potential to impact your investment returns. To address inflation risks, alternative investments such as Contemporary Art can help to diversify your portfolio and hedge against potential downturns.

See important Reg A disclosures: Masterworks.com/cd 

The information in this article is provided solely for educational purposes. This information is should not be construed as investment advice and should not form the basis of an investment decision.