North Korea's missile test this week was a powerful reminder that politics is something investors can ill afford to ignore.

The upcoming G20 meeting of the world's most powerful leaders may not create the headlines that send markets shooting higher or lower in a session. But it comes at a time when governments' foreign and domestic policy making is an increasingly important signal for long-term investors.

The Group of 20 countries account for more than four-fifths of gross world product, three-quarters of global trade, and are home to almost two-thirds of the world's population. In addition to Australia, the group includes heavyweights such as China, the US, Britain, Russia and the European Union.

North Korea's continued provocation is bound to cast a shadow over this weekend's discussions. But by the numbers, this year's summit, which officially begins Friday night, should be a rare moment of celebration after a difficult slog back to growth following the trauma of the global financial crisis in 2008.

Growth among the G20 economies has picked up to 2.8 per cent, against the 2.5 per cent recorded over the 12 months leading into the last meeting. Unemployment has tracked lower over the past year, and all of the country's sharemarkets – bar South Africa's – have recorded gains.

Despite all this, "there still seems to be a lot of negative press around how bad global growth is", UBS Wealth Management head of fixed income Tracey McNaughton said. And with good reason.

"On the surface growth is much better, but when you delve a little bit deeper it's not healthy growth, if you like," Ms McNaughton said. "We've been for too long relying on a single tool to drive growth: monetary policy."

Wealthier segments favoured

This heavy reliance on central bank stimulus "has created asset price bubbles, particularly in the housing market", Ms McNaughton said. This trend has favoured wealthier segments of populaces and reinforced rising income inequalities. In turn, this has led to increasing voter discontent and the rise in anti-establishment political parties and figures.

Which creates the dichotomy: while economic growth looks to be on the up, developed G20 governments have generally become less effective since the GFC. And Australia is not immune. Indeed, the decline in effectiveness of our government since 2008 has been among the most extreme, according to a World Bank rating, alongside that of the US.

Ms McNaughton describes the outcome of these developments as a "negative spiral". The rise of anti-establishment voting patterns has led to a "significant reduction in government effectiveness", blunting the ability of politicians to back up flagging monetary measures with the necessary fiscal policies and structural reform.

How leaders of the world's largest economies choose to tackle these issues will set the trajectory for those economies and financial markets, and provide the frame for making longer-term strategic investment decisions. The location for this year's summit is significant, as Germany's Chancellor Angela Merkel appears the most likely candidate to take global leadership from an increasingly isolated United States.

"What I think investors will take away from it is Merkel's strong global leadership," Ms McNaughton said. "It seems pretty clear that she will be tough with [US president Donald] Trump and it appears the 'G19' will go one way and the US will go the other.

"The US will increasingly isolate themselves, and that's a pretty important signal for investors. This is one of the reasons why, when you look at the balanced funds out there – [Australia] included – they don't have a lot of money invested in the US right now. Our money is in Europe and in Japan – and in Canada, where the government actually has the political capital to do something."

Canada the 'poster child'

McNaughton describes America's northern neighbour as "the poster child in developed markets".

"They are actually pursuing some sensible things on the fiscal side, like allowing people who are unemployed and receiving benefits to undertake self-funded training and study without losing their benefits. That sort of stuff, as an investor, I quite like, because it's reducing income inequality and making it more sustainable growth."