Feature – De-globalisation
New thinking has started to pervade investor circles. A belief that we are entering a new epoch, an era that will see a reversal of the many facets of globalisation.
A big authority on this is none other than Larry Fink, chief executive of asset management behemoth BlackRock. Fink has said the Ukraine conflict has “put an end to the globalisation we have experienced over the last three decades”. Has Fink called it right? Is de-globalisation where we are? “He’s absolutely spot on,” says Stuart Trow, former credit strategist at the European Bank for Reconstruction and Development. “What is confusing the issue is all the noise – the war and the pandemic. Global trade has been falling as a proportion of global GDP since the financial crisis, unwind- ing the downward pressure that globalisation had been exert- ing on inflation.” Neil Mason, assistant director, LGPS senior officer, at the Sur- rey Pension Fund, agrees, citing trends dating back over a dec- ade. “There has arguably been evidence of a drift towards more autarkic economic conditions since the financial crisis,” he says. “Government intervention in 2008 and then during the Covid crisis has been localised and contradicted globally con- nected economic systems.”
Strong narrative These views are supported by analysis undertaken by economic
forecaster, Oxford Economics. “Financial de-globalisation started in the global financial crisis and accelerated in the pan- demic,” says Charles Burton, a director at Oxford Economics. “While global cross-border claims have grown, the pace over the past decade-and-a-half has slowed. And when considered against the backdrop of the vast global monetary expansion, it’s clear that the global financial system has become more insular.” John Roe, head of multi-asset funds at Legal & General Invest- ment Management (LGIM), appreciates the de-globalisation idea, but says the evidence, at least so far, does not back up the grand narrative shift. “It’s a credible and strong narrative, but not yet backed up by data. Believable narratives can come true, but they can also be dangerous, as they can tap into natural biases and lead people to place too high a likelihood on one risk really occurring,” he says. “The lack of evidence could just reflect the lag before activity shows up in the data,” he adds. “But global trade volumes continue to rise and for the last decade or so have been a large- ly constant share of industrial production.”
Nowhere to hide
If we take what is happening as a big shift, it means investors have much to ponder. For one, the macro-economic picture will change, Trow says. “The background level of inflation will
THE LONG GOODBYE
22 | portfolio institutional | June 2022 | issue 114
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