De-globalisation – Feature
Mason says this will be determined by the extent of govern- ment intervention. “If the government either makes local investments relatively more attractive or, in the case of the LGPS, there is more of a move to ‘command and control’ then nationalistic investing will become ‘a thing’.” Otherwise, Mason says, investment fundamentals are unchanged. “That is, looking for quality assets with long-term risk-adjusted return characteristics. As mentioned earlier it is likely that the focus will be on the risk premium attached to these assets.” Roe highlights other challenges. “It would lead to the need for a lot of capital spending domestically in a lot of countries,” he says. “It’s less clear if it would lead to a lot more infrastructure spending though. Real incomes would grow more slowly than otherwise, putting pressure on fiscal positions, for example. “To the degree that certain forms of infrastructure directly improve worker productivity,” Roe says. “Then those areas would likely get increased support. Unless there are explicit government-led restrictions, it’s not obvious to me that it would increase local investment – with such high uncertainty over outcomes, the importance of diversification would appear as high as ever.” Could this in turn lead to a more ‘nationalistic’ form of invest- ment, as when globalisation reverses, nations and investors become more inward looking? “In a de-globalisation scenario supply-chain issues are largely going to be remedied by swal- lowing the cost of at least some on-shoring,” Trow says. “Maybe marginally,” Roe says of a nationalistic investment surge. “There’s definitely some evidence that certain types of investor already prefer domestic investments for reasons like the indirect effect it has on the domestic economy. But the big dial mover would be central regulation that made overseas investment unattractive or restricted it.” Trow adds a national-focused approach has implications on a climate-change level. “Hit by a sudden growth deceleration, India and others have increased coal investment as an import substitution strategy and as a means of securing jobs, even though solar is far cheaper for the economy as a whole.”
Faraway markets David Krivanek, programme manager for international devel- opment at the Impact Investing Institute, makes the point that whether investments are made in faraway markets or closer to home, what matters is they are grounded in need, and focused on solutions at national, regional and local level. “The adoption of a localised approach provides an alternative to de-globalisa- tion,” he says. So, a national and local investment approach here is antithetical to de-globalisation, not an extension of it. Some investors are already leading the way. “Pioneer institu- tional investors are showing the way in allocating their assets
in a way that is consistent with the needs and incorporates the voices, of the local communities in which it is invested,” Kri- vanek says. “This may include place-based impact investments supporting local regeneration or affordable housing, or infra- structure investments that help communities move to sustain- able sources of energy in a socially inclusive manner.” There could be a scenario where a more nationalistic-focused perspective faces-off with the challenges presented by ESG. “The question of ESG and engagement is an interesting one, and it is important that investors’ view this from a non-West- ern centric neutrality,” Mason says. “For example, there is some emerging evidence that shareholder power in the US may be polarising consistent with the general political landscape.”
This could see cases such as anti-decarbonisation shareholder resoluions, Mason says. “Developments such as this would put the E in responsible capitalism in potential conflict with the US compared to the big emerging market players like China, where the ‘S’ and ‘G’ have been more problematic,” he says.
Global and local
It could, therefore, be within the ESG arena that de-globalisa- tion has its greatest impact. Krivanek makes the investor con- nection between de-globalisation, ESG and a world that will still remain globalised in many respects. “While there may be a push towards de-globalisation in some parts of the market, responsible investors cannot ignore that environmental and social challenges are global as well as local,” he says. “Meeting the Paris Goals – which a growing number of institu- tional investors have now committed to – requires investment at scale for a fair and inclusive transition to net zero in devel- oped and emerging markets,” Krivanek adds. Roe also sees the shifting de-globalisation impact on ESG. “In many ways, the most likely cause for de-globalisation might actually be the need to tackle climate change. Reducing the use of transportation can play an important role here and if there’s sufficient pressure from investors and regulators, that could lead to more onshoring and less commitment to truly global supply lines.” For Trow, a key issue is the outlook for inflation. “It was globali- sation that was largely responsible for moderating inflation, not monetary policy. Globalisation suppressed inflation by increasing the supply of cheap goods and depressing wage growth in more developed countries,” he says. “Reversing the process means less downward pressure on prices and some- what increased labour pricing power. Sanctions, tariffs and the growing need to add resilience to supply chains all imply addi- tional cost, boosting background inflation.” So, for all the assertions of a grand narrative shift, a de-globalised world could well prove similar to the globalised version.
Issue 114 | June 2022 | portfolio institutional | 25
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48 |
Page 49 |
Page 50 |
Page 51 |
Page 52
