Related content
Global Insights event
October 17 and 18, 2023.
Chapters
01
The shifting global order02
Low growth, rising inflation and interest rates03
Get structural: Searching for ‘through cycle’ returns04
Ride the structural growth opportunity of a generation: decarbonisation05
Will emerging markets have their day again?06
Build core components to your portfolio07
Seeking resilience in your equity portfolios through Quality08
Bringing fundamentals to the forefront in EM Credit01
The shifting global order
Economic, climatic, and geopolitical issues are roiling markets. The question on investors’ minds is, are we moving into a fundamentally different investment regime? What are the major forces driving change? And how should investors prepare themselves?
Philip Saunders – Director, Investment Institute at Ninety One | Iain Cunningham – Portfolio manager, Global Macro Allocation | Grant Webster – Co-Head of Emerging Market & Sovereign FX | Charlie Dutton – Portfolio Manager, Asia Pacific Franchise
- Tensions between superpowers could create risks for businesses which overlap those countries, such as US firms deriving significant revenues from China. On the other hand, competition between powers will drive investment in select areas, creating opportunities for investors.
- For example, Europe, the US, and China are all trying to become independent in the production of strategic technology, like semiconductors. Whether this is possible is debatable, but it will result in a significant rise in capital expenditure.
- Following an era of globalisation, we may see a renewed focus on ‘regionalisation’. Trading relationships are already changing, and contrary to perceptions that protectionism is rising, some trade barriers are actually being dismantled. Meanwhile, global supply chains remain highly enmeshed. Russia’s invasion of Ukraine demonstrated how interconnected the world is – Europe’s reliance on Russian gas being just one example.
- The ‘dedollarisation’ trend (when countries seek to reduce reliance on the US dollar as a reserve currency and a means of exchange) is persisting. Also, sovereign debt to GDP is at high levels, and many countries rely on external funding. However, this source of funds could dry up if investors fear the weaponisation of that debt, as happened to Russia.
- China faces challenges: youth unemployment, a stressed property sector and high local government debt, to name some of them. But it will continue growing via productivity gains. Capital is flowing from banking, real estate, and state-owned enterprises into digital, electric-vehicle supply chains and financial institutions. There are many opportunities for investors.
- In short, we are moving into a new market and economic regime. The cost of capital will rise, but counter-intuitively, so will investment and capital expenditure – deglobalisation, decarbonisation and defence spending are all more capital- and resource-intensive. For investors, sectors that have done well historically may not do as well going forward.
