This article first appeared in Forum, The Edge Malaysia Weekly on February 12, 2024 - February 18, 2024

The world is in a mess. Polycrises or multiple crises that break out with no simple solutions — such as the Gaza genocide, social discontent, climate and natural disasters, and growing war fears — are changing the existing order.

The biggest worry for businessmen, investors and policymakers is how to interpret such confusing data and escalating risks. The World Economic Forum Chief Economists’ survey found that uncertainty is increasing: 56% expect the global economy to weaken over the next year, but 43% foresee unchanged or stronger conditions. Similarly, the 2024 Global Risk Report sees larger turbulence and catastrophes in a 10-year horizon. The top five risks in the next two years are misinformation and disinformation, extreme weather events, social polarisation, cybersecurity and interstate armed conflict. In a 10-year horizon, the top five risks are extreme weather events, critical change to Earth’s systems, biodiversity loss and ecosystem collapse, shortages of natural resources and misinformation and disinformation. Two more adverse risks of disruptive artificial intelligence (AI) technology and involuntary migration come next.

In short, the risk specialists are more concerned with immediate (up to two years) fears and outcomes, rather than events or risks lying further out where they are not the experts (and therefore not accountable). An economist will diagnose economic risks better than ecological or geopolitical risks because he is not trained to forecast these factors.

In a series of articles, this Condivergence column will try to explain that we live in a Giant Open Complex Systems Change, where micro-systems are interacting with each other to form macro-environmental outcomes at the planetary or global scale, which may be very different from the micro or national scale. All change is local, so individuals will see changes that are very different from the national or global level. Large players such as China create big waves, but small economies like Israel can influence policies of giants like the US. Nothing can be taken for granted.

The real problem with complex system change is not how it changes, but how each individual perceives that change and behaves accordingly. And each expert interprets the change through his own disciplinary expertise. A carpenter sees every problem as a nail to be hammered.

Santa Fe Institute professor of complex systems David Krakauer diagnoses four disciplinary approaches to analysing complex systems: quantitative, compressive, reductionist and historicist. The mathematician tries to explain the world quantitatively, only to find that there are qualitative issues that defy quantification, at least for now. The compressive approach explains the system in terms of the whole, such as an equation that a = b+c+a, meaning that “a” can be explained by factors “b” and “c”, plus an “errors and omissions” or residue factor “a”. This is an opposite approach to the reductionist approach, which tries to reduce complexity to ultimately one Theory of Everything. Every physicist like Albert Einstein seeks to write the ultimate code that explains everything from the simple to complex. The last discipline is historical, in which the past is explained in complex terms, in which patterns emerge so that we might be able to predict the future.

Historians agree that the past is often shaped by deep structural factors acting on each other, plus random events that throw what appeared to be an agreed trajectory way off course.

One perennial pattern is what Caltech physicist and polymath Stephen Wolfram called the Second Law of Thermodynamics — that everything corrodes from order to disorder. Time has a core property of irreversibility — a scrambled egg cannot be unscrambled. That is why theoretical physics has difficulty explaining social behaviour, which is shaped by human perception of reality, shaped not only by known knowns, but also unknown knowns, known unknowns and unknown unknowns. We all know what we know, but what we know may have unknown properties that can cause problems — for example, undetected toxins in food. Then there are known unknowns, where scientists know enough to be able to use big data models to “simulate” or project possible explanations. Finally, there are areas completely outside our knowledge — we do not even know that we don’t know such things exist. Human agency acts on information — good, bad or misinformed.

The Chinese classic Daodejing (Book of Tao) explains everything in terms of the Dao — the path or order of underlying nature. A famous passage is, the Dao creates one, one creates two, two creates three and three creates everything. It is a Chinese explanation of the Second Law, which says that entropy increases — everything breaks down to randomness or order corrodes. What makes the Dao unique is that there is no such thing as eternal Dao or no theory of everything — the Dao is continually changing. This means that no rule or standard is forever — the system is gamed.

The Daodejing is useful in explaining today’s confusion because the one — the current unipolar order — can easily split into two, left or right, as the US political system is deeply polarised. But two creates three, in which new parties or social movements appear like a trilemma, with a third factor that is neither left or right. Indeed, the Chinese Dao that works with five elements, eight trigrams or 64 hexagrams shows a Fibonacci series or mathematical pattern. Ancient thinking and modern mathematics/physics are converging to have a better explanation of the complex environment that we face.

So, how does that affect our investment horizon in the Chinese year of the Wooden Dragon? We know that different regions behave differently — Europe is stuck with the Ukraine war, China is struggling with deflation and the US seems to be doing well economically, but the debt numbers are scary. Chinese annual growth in the last 40 years has been three times faster than US growth, and US stock returns outperform those of the Chinese stock market, which has returned to levels last seen 30 years ago. Nothing is completely predictable in conventional terms. The past does not predict the future completely — the dollar-dominant system is de-dollarising and new competitors are appearing, including cybercurrencies. What goes up must go down, and vice versa, but we can never accurately predict its turning point.

We are in polycrises because the old world views no longer work — the new has not been formed. Ancient Chinese wisdom teaches that there are times when you just have to sit and watch and wait — you walk each step and watch what happens. Running away sometimes is a good strategy. Survival is the ultimate game. Bad luck does not apply to everyone and when everyone is pessimistic, the lone optimist may have his chance.

Depending on pure luck is gambling, but for the shrewd investor, timing is everything.

Tan Sri Andrew Sheng writes on global issues that affect investors. Tan Yi Kai is a Malaysian multi-asset trader based in Hong Kong.

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