Global Opportunities in a Deglobalising World

Recent moves towards a retreat from globalisation do not demand a concomitant retreat from global equities. Setting aside any arguments about the broader geopolitical wisdom of greater isolationism, our objective view is that a comparative increase in market disintegration simply presents new and different opportunities for sophisticated investors.

Jun 27, 2017 | Stephen Anness and Andy Hall

Globalisation has been with us for some time, although quite how long is a matter of debate. Competing theories argue that the phenomenon began decades, centuries or even millennia ago.

Whatever its origins, the process has undoubtedly accelerated during the past halfcentury. We now have a genuinely worldwide nexus of trade, investment, migration and technological/financial integration. Exemplified by supranational organisations such as the IMF and the WTO, the so-called “death of distance” is all but complete.

Yet history shows only too clearly that globalisation can go backwards as well as forwards1. We do not have to gaze far into the past to find periods where openness has given way to insularity. The economic turmoil of the 1930s, characterised by tariffs and trade wars, is often cited as a classic illustration of deglobalisation in action.

Now a new phase of comparative isolationism could be in prospect. The outcome of the US presidential election and Britain’s vote to leave the European Union are just two of the events that have suggested a shift back towards nationalism and, by extension, protectionist policies.

What does all of this mean for investors in global equities? In this whitepaper we look at the forces that have driven both globalisation and the current reaction to it; we examine lessons from history and their relevance to the situation today; and we outline some potential scenarios and how investors might best respond to them.

Using real-world examples from our own experience, we also analyse the significance of considerations such as market correlation, diversification and decoupling. Finally, extending some of the key themes from our earlier whitepaper, Daring to Be Different: the Benefits of Contrarian Investing, we discuss the importance of qualities such as imagination, creativity and rigour in shaping investment strategies for a world that, though in some ways seemingly in retreat, continues to offer investors in global equities a vast universe of value-led opportunities.

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1 In our previous whitepaper, Daring to Be Different: the Benefits of Contrarian Investing, we spoke of “living in an age of unprecedented globalisation”. In many ways the interconnectedness of our world will undoubtedly continue to intensify; in others, however, at least in the short-to-medium term, this interconnectedness may be set to diminish.