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Investing In The Age Of De-Globalization

By Esther M Baroudy, Elliot Hentov, & Altaf Amirali Kassam

Epochenjahr is one of those wonderful German words describing a concept in a single word. In detail, it refers to a year when one era ends and another begins, usually referring to watershed moments such as 1789 or 1918. As investors, we should consider whether 2016 marks the end of globalisation as we know it, as the election of Donald Trump and the Brexit vote inaugurated an era of deconstructing the global trading order. The reversal of globalisation – in effect, de-globalisation – is a process that would gradually constrain the flow of capital, goods, labour as well as data.

It is critical to recognise that there are three interconnected forces at play: first, the failure of developed economies to maintain post-war economic growth rates post-2000; second, the inability to manage the distributional effects of globalisation’s winners and losers; and third, the distortional nature of China’s political economy within the global architecture. Together, these forces have undermined public support for globalisation in advanced economies, leading to policy outcomes that exacerbate the stress points and therefore further the push for de-globalisation. In short, unless there is a structural turnaround in the three factors above, current trends will become more pronounced.

From a macro perspective, de-globalisation should therefore work like globalisation in reverse, though this is unlikely to be in a perfectly symmetrical manner. Trade-dependent economies are most vulnerable, with small to middle open economies challenged to revamp their growth models.

Conversely, economies with large domestic markets or access to such a market, notably the US and China and possibly the European Union (EU), could better absorb such a regime shift. Similarly, this also applies to the funding mechanism for the respective countries, with the ability to borrow in a reserve currency or access to large capital pools becoming a disproportionate advantage as cross-border finance becomes more exposed to geopolitical volatility.

In the meantime, with the EU and China both having significant export components to their economies, structural adjustments will have to take place and these may take a considerable amount of time, if not years.

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Originally Posted on August 6, 2019 –Investing In The Age Of De-Globalization

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The views expressed in this material are the views of Esther Baroudy, Elliot Hentov and Altaf Kassam through the period ended 08/05/2019 and are subject to change based on market and other conditions. This document contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected.

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