Globalization has for a long time been a ‘tide that has lifted all boats’ and, as a consequence, supply chains have become increasingly integrated, allowing inventory levels to be reduced. This has, however, exacerbated recent supply shortages, and the narrative has started to change amid events such as the blockage in the Suez Canal, which disrupted one of the world’s busiest trade routes and recent impacts of China’s zero-Covid policy.
Against this backdrop, we believe globalization as we have known it for the last three decades is ending, and we are entering a period of deglobalization and a new paradigm in terms of global trade practices and policies. Supply shortages resulting from highly integrated supply chains are laying bare the disadvantages of being over-reliant on other nations. Looking ahead, we expect governments will play a greater role in markets via fiscal policy, more protection of sensitive industries, and incentives to direct capital allocation.
Simon Nichols, portfolio manager, Newton Investment Management
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Recent market risks include pandemic risks related to COVID-19. The effects of COVID-19 have contributed to increased volatility in global markets and will likely affect certain countries, companies, industries and market sectors more dramatically than others.
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