Feature – De-globalisation
successful approaches deeply ingrained in many thought processes,” Roe adds. “That said, for now there are many obsta- cles to it occurring. Also, the speed over which it occurs would be an important factor, with quicker, more disorderly change leading to greater risk for asset markets.” One thing investors do have is time. Oxford Economics’ Bur- ton says that when it comes to the speed of de-globalisation, the process will be a steady affair. “De-globalisation is unlikely to be a ‘big bang’ but more a creeping tide of targeted measures by individual countries,” he says.
Winners & losers
The situation throws up an interesting position for bonds, says Trow. “With government bond yields now rising, the point will come when investors once again start to see them as a viable means of reducing risk. This will keep a cap on equity rebound potential,” he says. “A rather surprising loser in the current crisis has been index- linked gilts,” he adds. “Which raises issues about the market’s effectiveness as either an inflation or rate hedge.” Where will the investment winners be in this new world? “It’s not really a ‘winners’ kind of environment, with global growth likely to also be slow,” Trow says. “Relatively speaking though, those countries and sectors least dependent on trade. Remem- ber Germany was within a whisker of recession even before the pandemic because Europe was the biggest loser of the US-China trade war,” he adds. Roe says de-globalisation could lead to a lot more losers than winners. “Globalisation enabled specialisation and reduced the cost of many goods in real terms, allowing developed markets to run high levels of consumption through consistent net imports from producers abroad.” For investment winners, a lot depends on the mixture of policies used, says Roe. “There are, for example, circumstances where technology firms could benefit, with their intellectual property and products still more easily able to cross barriers, but tech rev- enue taxes, for example, would potentially negate that.” The most probable route for de-globalisation would be one where there is less trade between developed and emerging markets, particularly in goods, says Roe. “This would put great pressure on labour availability and costs in developed coun- tries, leading to relative winners in areas that support capital spending aimed at increasing worker efficiency.” Areas like robotics, automation and materials providers would seem well placed on a relative basis, Roe says. “Other winners would potentially be those emerging markets that still remain integrated with nearby, more developed neighbours: for exam- ple, eastern Europe and Mexico, which could see extremely supportive dynamics.” Mason, though, is unmoved. “Short term there has been a tra-
24 | portfolio institutional | June 2022 | issue 114
De-globalisation is unlikely to be a ‘big bang’ but more a creeping tide of targeted measures by individual countries.
Charles Burton, Oxford Economics
ditional rush to defensive sectors – commodities, etc – but these sectors are not sustainable long term in their current form. And we are in it for the long term.” From a macro-eco- nomic perspective, Richard Bullock, Newton Investment Man- agement’s geopolitical research analyst, says everyone is a loser under de-globalisation. “One of the major implications of a de-globalised world in which fewer goods, capital and ideas traverse borders as a portion of GDP is a level of overall lower productivity growth and higher inflation,” he says. Although, for Burton, not all macro-economic scenarios con- nected to de-globalisation hang together. “Suggestions of the dollar losing its reserve currency status or a large ‘Eurasian’ world trade axis arising, look to be exaggerated,” he says.
Domestic investment
De-globalisation could well lead to a retreat from global invest- ments to ones closer to home, like infrastructure, which to the home country involved can only be a good thing. “It certainly should do,” Trow says. “The most economically sustainable stimulus is to invest in things that increase domestic produc- tivity. That’s far less likely to stoke inflation than something that merely temporarily lifts demand.”
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