One of the emerging economic trends of recent years is the reversal of globalisation, and it is likely to mean “clear winners and losers” emerge in investment terms, according to David Jane, multi-asset investor at Premier Miton.
Jane said the world in deglobalisation mode meant there were important implications for investment going forward.
Most obviously, deglobalisation is inflationary.
He added: "During globalisation, we saw the replacement of expensive Western labour with cheap Chinese labour. This, combined with cheap Chinese energy (coal), had a major disinflationary impact over the past 20 years.
"Whilst reshoring may make sense from a security of supply point of view, labour costs, regulation and energy costs mean it may inevitably lead to cost increases. That is not to say it will be necessarily damaging to the economies that bring production back, as domestic investment and job creation will kick in to increase demand in the long term.
"Whether companies are fully able to pass on the additional costs associated with greater domestic production is an important point regarding margins. Company profits as a share of GDP have seen growth over many years and may now start to fall.”
As a result, this scenario will produce “clear losers as well as winners", with some of the sectors that have been out of favour with investors, such as US manufacturers, Jane added.
The US is also benefitting from another deglobalisation trend - Europe’s energy problems.
The forced deindustrialization of Europe, through the commitment to environmental policies, has long benefitted China.
Now this has become an extreme problem as expensive energy, and even energy shortages, give European manufacturers a major competitive disadvantage, and the US is stepping in to fill the gap.
This is particularly so in fertilizer and petrochemical products but will also impact manufactured goods in time.
Jane said: "In the long run, the big winner from deglobalisation is likely to be the US.
"It has a large and growing workforce, energy and many other raw materials in abundance. Hence our preferred way to gain exposure to this theme is our recently built portfolio of US outsourced manufacturers.
"These are already benefitting from the recent supply chain turmoil from Covid and may have increasing opportunities as this theme builds momentum.”
david.thorpe@ft.com
