SNAPSHOT2 min read

As globalization fades, investors find new opportunities in emerging and developed markets.

In the final piece of a three-part series, we explore the impact of deglobalization on global markets and businesses, as the global economy shifts from the NICE era to a new era of deglobalization. Companies and policymakers are prioritizing resilience and security, creating new risks and opportunities for investors. India and Vietnam are top-ranked for diversifying manufacturing exposure, and other countries like South Korea, Kenya, Thailand, Indonesia, Poland, Germany, Mexico, and the United States are also well-positioned to benefit. Active managers must understand the broad range of affected markets, regions, sectors, and companies and keep an eye out for the butterfly effect. As inflation pressures reassert themselves, new opportunities will arise from around the world.

13/09/2023
Deglobalisation

Authors

Adam Farstrup
Head of Multi-Asset, Americas

It was nice while it lasted. Beginning in the 1990s, the U.S. and world economies benefitted from NICE – the Non-Inflationary Consistently Expansionary – era. The era was driven in large part by globalization. Companies surged into China and other countries in search of low-cost labor and cheap, efficient manufacturing and supply chains. With some hiccups, growth stayed high and prices and inflation stayed low. 

Now, we have edged into the new era of deglobalization. Impacted by Covid-19 disruptions and wary of unpredictable world events, companies and policymakers are re-prioritizing resilience and security for their manufacturing and supply chain operations, rather than focusing purely on cost reduction.  

But it’s not just deglobalization that’s changing the world order. Demographics and decarbonization are also creating tectonic shifts, bringing about what we’re calling the 3D Reset. We believe the convergence of deglobalization, demographics and decarbonization is leading to higher inflation pressures and tighter monetary policies worldwide. Reconfiguring supply chains has already raised prices for goods.  

As the globalization dividend winds down, the 3D Reset is creating new risks and opportunities for investors. As re-shoring, near-shoring, friend-shoring and more yet-to-come-shorings accelerate, a range of countries, markets and asset classes stand to benefit. 

While China will continue to play an important role in the global economy, it’s helpful to look at what other countries stand to benefit from manufacturing shifts and supply chain restructuring. In a recent report, we analyzed four key factors in assessing which economies stand to benefit from these changes. Taking into account the labor pool, ease of doing business (business freedom), per capita GDP, and productivity, we see a wide range of countries, both in emerging and developed markets, that are well positioned.  

India, with its vast labor pool and lower labor costs, is ranked No. 1 for multinationals looking to diversify their manufacturing exposure. Vietnam, at No. 2, shares India’s advantages, as well as high productivity. Other factors, such as business freedom, boost South Korea. But the sweep of countries poised to benefit is broad and geographically diverse, spanning Kenya, Thailand, Indonesia, Poland, Germany, Mexico and the United States, among others.  

There may also be investible trends within those shifts, such as a partial bifurcation where advanced manufacturing gravitates to developed countries, and developing countries attract work that requires a vast labor force.  

Those opportunities could also be reflected in worldwide stock markets. As noted, active managers will be attuned to a changing array of opportunities. They’ll require deep knowledge, though, to understand how a broad range of markets, countries, regions, sectors, and companies will be affected. They’ll also need to keep an eye out for the so-called butterfly effect, in which changes in one area can have unexpected impacts somewhere else.  

With the 3D reset, we are looking ahead to a world that is no longer buoyed by globalization’s decades-long but dimming ascent. In this world, NICE - Non-Inflationary Consistently Expansionary – has been traded for “necessary,” where inflation pressures reassert themselves and opportunities will be hewed from new sources around world.  

Important Information: This communication is marketing material. The views and opinions contained herein are those of the author(s) on this page, and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds. This material is intended to be for information purposes only and is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. It is not intended to provide and should not be relied on for accounting, legal or tax advice, or investment recommendations. Reliance should not be placed on the views and information in this document when taking individual investment and/or strategic decisions. Past performance is not a reliable indicator of future results. The value of an investment can go down as well as up and is not guaranteed. All investments involve risks including the risk of possible loss of principal. Information herein is believed to be reliable but Schroders does not warrant its completeness or accuracy. Some information quoted was obtained from external sources we consider to be reliable. No responsibility can be accepted for errors of fact obtained from third parties, and this data may change with market conditions. This does not exclude any duty or liability that Schroders has to its customers under any regulatory system. Regions/ sectors shown for illustrative purposes only and should not be viewed as a recommendation to buy/sell. The opinions in this material include some forecasted views. We believe we are basing our expectations and beliefs on reasonable assumptions within the bounds of what we currently know. However, there is no guarantee than any forecasts or opinions will be realised. These views and opinions may change. The content is issued by Schroder Investment Management Limited, 1 London Wall Place, London EC2Y 5AU. Registered No. 1893220 England. Authorised and regulated by the Financial Conduct Authority.

Authors

Adam Farstrup
Head of Multi-Asset, Americas

Topics

Follow us

To facilitate legibility, the language forms male, female and diverse (m/f/d) are not used simultaneously in this text. All references to persons apply equally to all genders.

Schroder Investment Management (Switzerland) AG (herein after called "SIMSAG") webpages are aimed exclusively at qualified investors with their registered office or residence in Switzerland. The SIMSAG webpage also contains information about collective investment schemes which are not approved for distribution to non-qualified investors in Switzerland.

For illustrative purposes only and does not constitute a recommendation to invest in the above-mentioned security / sector / country.