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Trump and Trudeau

We understand one of the more complex aspects of human behaviour is our universal ability to laugh. According to an original article published in the MIT Technology Review, laughter has puzzled biologists for many years because it is hard to imagine how this strange behaviour has evolved. Why, for example, would laughing individuals be more successful in reproductive terms? Moreover, why is this ability built-in (very young babies are able to laugh), rather than something we have to learn?

It is natural to assume the evolution of laughter is linked with the development of the human brain, with the latter changing rapidly at the same time human group sizes increased. Bigger groups naturally led to greater social complexity. Indeed, it seems likely the brain evolved not to solve complicated problems, such as how to use tools, how to hunt more effectively and how to cook. Instead, the catalyst for the cognitive ‘fast forward’ was the need to cope with the social demands of living in ever larger groups.

The uniqueness of mass cooperation, achieved by groups of humans, is a concept explored by Yuval Noah Harari in his book; Sapiens; A Brief History of Humankind. He believes the reason humans suddenly emerged as the dominant animal on Earth, is our ability to cooperate in huge numbers. He states ‘Any attempt to understand our unique role in the world by studying our brains, our bodies, or our family relations, is doomed to failure. The real difference between us and chimpanzees is the mysterious glue that enables millions of humans to cooperate effectively’.

But what is this ‘glue?’ Simply put, it is our ability to tell – and believe in – stories and myths. We cooperate effectively with strangers because we share common beliefs in things like nations, money and human rights. Yet none of these things exists outside the stories that people invent and tell one another. Moreover, none of these stories can be told without a means to communicate them, i.e. a language. Scientists contend language evolved as a way of establishing and strengthening bonds with larger numbers of individuals. It is understood laughter is simply an extension of this process. Since the act of talking limits the number of individuals who can take part in a conversation, laughter is a method that individuals use to signal their participation in larger group dialogue. The result of all this extra bonding is that the larger group, and hence the individuals within it, flourishes.

Our reflections on laughter, communication and glue were prompted by the infographic below. It was created for the South China Morning Post and – we believe – is a striking visual representation of the size of speaker population for the languages with over 50 million speakers. Apparently, there are 7 billion people on Earth and about 7,000 languages, however, more than half of the world's population speaks one of just 23. That said, the image identifies one language family, in its various dialects, which dominates all others; Chinese.

This will not be a surprise to many; however, we are minded to argue there is an even more dominant language than Chinese; one which acts as a glue, enables us to flourish and facilitates the cooperation and shared purpose of billions of people around the world. This language is, of course, global trade. The exchange of goods and services between different groups of humans lies at the very core of economic growth and prosperity. The re-introduction of trade barriers and rhetoric around anti-globalisation is therefore worrisome for us all and, according to PIMCO, will only worsen in the face of a recession. Understandably, the topic is currently receiving much airtime and many column inches, so we will leave others to comment.

Instead – and returning to the dominance of the Chinese – we believe it is important to highlight how the settlement of some of the most important contracts of trade is pivoting from New York and London, to Shanghai. In March of this year, China – the world’s largest importer of oil – listed local currency crude futures on the Shanghai Exchange. In a move to create its own benchmark, the Chinese securities regulator announced that international investors were able to access these oil futures, priced in renminbi (RMB). Futures contracts, also denominated in RMB, for key metals are now available; last month, c.12% of all iron ore contracts, traded globally, settled in Shanghai.

Implications for portfolios

We expect renminbi-denominated securities and derivatives to grow in volume and increase in popularity, as nations and companies become less reliant on the US dollar and its dominance as the global trade currency recedes. Investors will also need to respond to the on-going inclusion of renminbi-denominated securities in the world’s major bond indices; in particular, the Bloomberg Barclays Global Aggregate, where they will represent c.5.5% from April next year. This internationalisation of the RMB already has momentum and we believe it is a sensible investment strategy to be building exposure to this theme.

The ability to communicate will be key in managing the rising risks of trade wars. Perhaps the language of diplomacy may need to shift from French to Chinese – a topic for another VFTD. In the interim, we may have to rely on laughter as a key communication channel in constructive negotiations. Over to you Trump and Trudeau.

Julia Warrander and Russell Waite

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