When Markets Are Calmer Than the Experts: Andrey Movchan’s Global Forecast

To discuss the economy, one needs to distinguish between strategic matters that really make a difference and unimportant matters. The question of whether inflation will be slightly higher this year or global GDP will slow by half a percentage point is not a serious matter for two reasons.

First, it is very difficult to predict. The history of forecasting shows that leading experts hit the mark with an accuracy of about 45%. If they simply threw darts at a wall, the result would be better.

Second, these fractions of a percent have little impact on real life — on people’s investment and consumption.

At the same time, one needs to ask: what kind of GDP is this, and what is driving its growth? During wartime, GDP rises because significant funds are invested in the production of fast-consuming missiles, shells, and tanks. If you let a macroeconomist look at the numbers, he would say of a country at war: “the economy is developing well.” And of a country that has ended the war and turned to peaceful reconstruction, he would say: “there is a crisis here, GDP has fallen.”

Therefore, one should look not at the IMF’s aggregate figures, but at household incomes, the size of specific industries, and price dynamics for goods.

Panic over oil at $100 and a blockade of the Strait of Hormuz is rooted in the trauma of the 1970s, which no longer applies.

Global inflation is, in essence, inflation in the United States plus Europe, plus a little China and a few other countries. Everything is weighted by the volume of trade, so the rest of the countries hardly change the overall figure at all. If inflation in Turkey rises from 200% to 400%, that would add at most a few tenths of a percentage point to global inflation.

Taking into account the inflation accumulated over the decade, $100 per barrel today is significantly less in real terms than it was in 2011–2013. Back then, the global economy did not collapse; it was growing strongly. China was developing on oil that was much more expensive in real terms.

The modern economy has become less oil-intensive. Demand is shifting toward new energy sectors and non-energy sectors. A 1% fluctuation in global inflation is a mathematical margin of error that does not change the long-term trend.

Key indicator: the elite club of major oil traders is not showing any panic. The yield on 10-year U.S. Treasuries has moved from 3.95% to 4.2% — an immaterial change. The investment world, unlike the experts, is taking the situation calmly.

Where the layperson sees the risk of supply disruptions, professional capital sees opportunities to reconfigure resource flows.

A blockade of the strait generates new economic activity. Gas and oil pipelines need to be built through Turkey. Saudi Arabia needs to double the capacity of its oil pipeline to the Red Sea. The Emirates and Oman need to build an oil pipeline bypassing the strait to the Indian Ocean. Britain needs to develop North Sea fields. This means construction, investment, and jobs.

The higher oil price itself also adds to exporters’ gross product. Kazakhstan will benefit from this as a country that produces a lot of oil relative to its GDP.

Over the past 50–70 years, the largest economies have become significantly more robust thanks to the development of financial systems. They can no longer be knocked off balance by higher oil prices the way they used to be.

There is also a countervailing logic to keep in mind. Today’s price increase is not driven by production costs, but by a decline in supply. This decline is not yet being felt because there are reserves and tankers that have already been loaded are still en route. Once the reserves run out, there could be another price spike and a physical shortage affecting production volumes.

The economy is inherently unstable. Small changes in some parameters can lead to large changes in others. A situation can build up unnoticed, and then a quantitative change becomes a qualitative one — as in the 2005–2007 credit crisis, which was “not supposed” to happen, but did happen and raged for a year and a half.

The conclusion about the likelihood of a shock should be drawn not from headlines, but from the behavior of those who should know: major traders, companies with reserves, and serious economies like Japan. As long as they are not changing their purchasing policies, that is a signal that the situation is milder than it seems.

There is a strategic migration underway on the global capital map. Between 15,000 and 30,000 millionaires have left London — but this is a consequence of tax changes (the abolition of the non-dom regime and the new stamp duty), not geopolitics. The decline in London property prices has been going on for about 15 years since the 2008 overheating and is also unrelated to the Persian Gulf.

Dubai has unfortunate predecessors. It is the third historical financial center in the Middle East. The first was Beirut — “Switzerland on the sea,” where everyone felt safe until the Lebanese civil war in the early 1970s. The second was Tehran, a model of a liberal regime, until the revolution in Iran seven years after the Lebanese exodus. Dubai is the third.

Four key risks for Dubai:

1. Dependence on oil. Despite the facade of diversification, the economy remains reliant on hydrocarbons.
2. Demographic imbalance. 75% of the population are wage workers from India, Pakistan, and Africa, whose interests diverge from those of the elite.
3. A frontline position. A direct risk of conflict with Iran, which has already once seized the Emirates’ islands in the Persian Gulf.
4. Real estate bubble. A high share of unfinished projects, a sharp decline in secondary-market prices relative to primary-market prices, rapid obsolescence of properties, money being pumped into the segment, and inflated prices.

The main new threat is precisely the real estate bubble. The Iranian threat has not increased much over the past three years, whereas the bubble is inflating and could damage Dubai’s market before any serious conflict.

There is still no alternative in the region: the other countries are less developed in legal terms and are just as geopolitically dependent. Cyprus is prospering thanks to inflows from Dubai, Lebanon and Israel, but it has its own risks around gas fields and relations with Turkey. Hong Kong is constrained by Chinese governance, while Singapore is denser and less convenient.

In this context, the AIFC in Kazakhstan is a promising platform. Inflation of 10–11% may seem high, but 40 years ago it was the norm in the developed world. Kazakhstan’s main advantage is its high-quality human capital, inexpensive by international standards: qualified professionals with international education who are ready to work in global markets for less than they would earn in London or Dubai. Movchan Group maintains a licensed company and a large office in Astana.

If a crisis comes, it will not come from oil, but from credit.

A long period of low interest rates has created a huge debt overhang. The entire 6,500-year documented history of debt capital is a history of default cycles. Debt accumulates without limit, passes beyond the saturation point, and goes into default, after which the market is cleansed. The last cleansing was in 2008, about 20 years ago. Before that, it was in the early 1980s. The cycle repeats every 20–25 years.

Warning signs are already visible. Major players, including BlackRock, are imposing “gates” on their private credit funds, restricting redemptions. Exchange-traded funds are trading at a 15–25% discount to net asset value. The situation is reminiscent of 2005 in terms of the level of pessimism.

The mechanics of the “default spiral”:

1. Declining liquidity. Funds are preemptively imposing gates to avoid a run by investors in the event of a cash shortfall.
2. Hidden losses. Banks keep dead loans on their balance sheets through creative accounting, without recognizing the losses.
3. Capital drain. Investors pull money out of emerging markets to cover losses in their home markets. Emerging markets are highly sensitive to capital outflows.
4. Refinancing squeeze. At high interest rates, businesses cannot refinance their debt, default rates rise, and the spiral intensifies.

Unlike in 2005, when the problem was concentrated in mortgages, now it is broader — across the board.

This is also a risk for Kazakhstan. Public debt is low, but debt-service costs as a share of GDP are the same as in the United States: 2.8 trillion tenge a year in interest payments alone. If markets fall, the dollar will strengthen, and since almost half of the National Fund’s reserves are not in dollars, a currency loss will replace the profit. At the same time, borrowing costs will rise if it becomes necessary to cover the budget deficit.

A 20–25% correction in the U.S. stock market, in this context, looks not like a catastrophe but like a necessary cleansing procedure. Even Trump said he expects the market to be 20–25% below current levels.

From an investment perspective, artificial intelligence is a narrow club, not a mass-market bubble. When people talk about a bubble, they mean millions of investors and huge chunks of the market. Here, the big money is circulating among insiders. For those who cannot invest directly in Palantir or OpenAI, there is nothing to worry about.

Nvidia is a special case. It is a company needed not only for AI, and it is unlikely to be part of the bubble: the need for computing power is growing regardless of whether AI remains a “bad assistant” or becomes a powerful system.

The idea that artificial intelligence is the future of public administration and defense is a painful attempt to find demand for an already existing supply. This is not “Plan B” but “Plan A”: the state with its enormous budgets is the only buyer with deep enough pockets.

Why defense has become the main theater for AI:

• Several major centers of power have emerged that are capable of waging a long war, but without agreements or even contact with one another.
• Conventional weapons, even the most powerful ones, are no match for unconventional adversaries — terrorist and ultra-religious movements.
• The mechanics of warfare are changing fundamentally. Intelligent systems are replacing human-controlled ones, which are proving less effective.

The era of “gentlemanly warfare” is over. There are no rules anymore, and it is not even clear who those rules apply to. Defense and healthcare will be two of the biggest budget pressures worldwide, and this is increasing public debt.

In periods of turbulence, simply buying the S&P 500 is risky. The returns markets delivered in recent years are unlikely to be repeated in the near term.

It is worth keeping part of your money in market-neutral products with low correlation to the market:

• Long/Short strategies — a bet on the spread between overvalued and undervalued assets. The movement is not tied to the overall direction of the market.
• Options hedging — protection against tail risks and sharp downturns.
• Special situations — short-duration bonds undervalued by the market, with minimal market risk.
• Arbitrage in REITs — a long/short strategy in REITs that outperforms the real estate market.

A healthy return range for such products is from 6% per annum in dollars for conservative strategies to 12–13% for aggressive ones, with market correlation ranging from −0.2 to +0.4. Chasing higher returns is dangerous: volatility will eat it all up.

The main recommendation is strict information hygiene. News is written specifically to provoke strong emotions. That does not mean the world is heading toward catastrophe. The modern world is more stable than it seems from the articles, and its main weak point is debt; in that respect, nothing has changed since the days of Ancient Assyria.

Against the broader backdrop, Kazakhstan looks decent: it ranks among the world’s 50 largest economies (36th place), while by population it is only “two Israels.” The main challenge is not financial but demographic: creating a critical mass of specialists capable of producing high value-added products. This can only be achieved through education and attracting talent.