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Even before the current crisis, globalisation was under threat due to the wave of populism around the world. So does this crisis mark the end of globalisation? What would de-globalisation look like given the interconnectedness and complexity of the economy and what does it mean for investors’ portfolios?
The Butterfly Defect: How Globalization Creates Systemic Risks, and What to Do about It[vc_quotes layout=”accordion” quotes=”%5B%7B%22name%22%3A%22Ian%20Goldin%22%2C%22job_role%22%3A%22Professor%20of%20Globalisation%20and%20Development%2C%20Oxford%20University%20(United%20Kingdom)%22%2C%22content%22%3A%22Professor%20Ian%20Goldin%20was%20the%20founding%20director%20of%20the%20Oxford%20Martin%20School%20from%202006%20to%202016.%20He%20is%20currently%20director%20of%20the%20Oxford%20Martin%20Programme%20on%20Technological%20and%20Economic%20Change.%5CnBefore%20coming%20to%20Oxford%2C%20Professor%20Goldin%20was%20vice%20president%20of%20the%20World%20Bank%20(2003-2006)%20and%20prior%20to%20that%20the%20bank’s%20director%20of%20development%20policy%20(2001-2003).%20He%20served%20on%20the%20bank’s%20senior%20management%20team%20and%20led%20the%20bank’s%20collaboration%20with%20the%20United%20Nations%20and%20other%20partners%20as%20well%20as%20with%20key%20countries.%20As%20director%20of%20development%20policy%2C%20he%20played%20a%20pivotal%20role%20in%20the%20research%20and%20strategy%20agenda%20of%20the%20bank.%5CnFrom%201996%20to%202001%20he%20was%20chief%20executive%20and%20managing%20director%20of%20the%20Development%20Bank%20of%20Southern%20Africa%20and%20served%20as%20an%20advisor%20to%20President%20Nelson%20Mandela.%20He%20succeeded%20in%20transforming%20the%20bank%20to%20become%20the%20leading%20agent%20of%20development%20in%20the%2014%20countries%20of%20Southern%20Africa.%20During%20this%20period%2C%20he%20served%20on%20several%20government%20committees%20and%20boards%2C%20and%20was%20finance%20director%20for%20South%20Africa’s%20Olympic%20bid.%5CnHe%20has%20also%20been%20principal%20economist%20at%20the%20European%20Bank%20for%20Reconstruction%20and%20Development%20(EBRD)%20in%20London%2C%20and%20program%20director%20at%20the%20OECD%20Development%20Centre%20in%20Paris%2C%20where%20he%20directed%20the%20programs%20on%20trade%2C%20environment%20and%20sustainable%20development.%5Cn%22%2C%22image%22%3A%2231919%22%2C%22linkedin%22%3A%22https%3A%2F%2Fwww.linkedin.com%2Fin%2Fian-goldin-008934a%2F%22%7D%5D” title=”Speaker” el_class=””][vc_quotes layout=”accordion” quotes=”%5B%7B%22name%22%3A%22Amanda%20White%22%2C%22job_role%22%3A%22Director%20of%20institutional%20content%2C%20Conexus%20Financial%20(Australia)%22%2C%22content%22%3A%22Amanda%20White%20is%20responsible%20for%20the%20content%20across%20all%20Conexus%20Financial%E2%80%99s%20institutional%20media%20and%20events.%20In%20addition%20to%20being%20the%20editor%20of%20Top1000funds.com%2C%20she%20is%20responsible%20for%20directing%20the%20global%20bi-annual%20Fiduciary%20Investors%20Symposium%20which%20challenges%20global%20investors%20on%20investment%20best%20practice%20and%20aims%20to%20place%20the%20responsibilities%20of%20investors%20in%20wider%20societal%2C%20and%20political%20contexts.%20She%20holds%20a%20Bachelor%20of%20Economics%20and%20a%20Masters%20of%20Art%20in%20Journalism%20and%20has%20been%20an%20investment%20journalist%20for%20more%20than%2025%20years.%20She%20is%20currently%20a%20fellow%20in%20the%20Finance%20Leaders%20Fellowship%20at%20the%20Aspen%20Institute.%20The%20two-year%20program%20seeks%20to%20develop%20the%20next%20generation%20of%20responsible%2C%20community-spirited%20leaders%20in%20the%20global%20finance%20industry.%22%2C%22image%22%3A%2231872%22%2C%22linkedin%22%3A%22https%3A%2F%2Fwww.linkedin.com%2Fin%2Famanda-white-101a7515%2F%22%7D%5D” title=”Moderator” el_class=””][vc_empty_space height=”10px”]
Key takeaways
It is simply not true that the pandemic has killed globalisation. For example, COVID-19 has sharply accelerated digital globalisation. The US is, however, de-globalising itself through its policies.
COVID-19 has driven sharp acceleration across four key trends – automation/robotics, customisation, immediacy and nationalism/protectionism. What was thought impossible in January is now mainstream in June.
The pandemic will lead to a repricing of all asset classes which will require a rethinking of investment decision-making. There will also be a new wave of M&A.
There is no return for fossil fuels. ESG is pushing in the right direction because it is building resilience. But it is not enough.
Government is back. Big time. To manage global threats we need stronger global institutions and stronger collaboration.
Young people are making huge sacrifices to keep old people alive and there will be payback for this.
We are at a crossroads, but will the outcome parallel WWI or WWII? The answer makes a huge difference to the future of mankind.
There is reason to be bullish on China:
The quality of growth is improving.
They have 4 million less workers this year than last due to demographics therefore AI, robotics and automation is a blessing, not a curse.
A Cold War 2.0 with USA and China at the centre would be disastrous for global growth. If there is a tech race between US and China, China will win, by some distance. 30 per cent of AI recruits in Silicon Valley come from China. The idea that we are not interdependent on AI is a nonsense.
A Democratic US election win may be as disastrous for the US-China relationship as a Trump win, although the Democrats may manage the relationship with greater sophistication.
I worry about 10 million workers each year coming onto the African labour market. Where are the labour-intensive jobs of the future for low skilled workers? Previously what was done by thousands of people in Bangalore is now done by a single server in a basement.
A world with unequal trade relations is a dangerous world to inhabit. The small players need to be protected from the giants.
The absence of global authority may create a second wave of corona via airlines. Other future risks include:
Natural disasters
Cyber attacks
Disruption to communication lines between East & West
Finance risk not captured by legislation such as Basel II
Overly concentrated geographic risk
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Poll results
What form will globalisation take in the new world order?[vc_line_chart x_values=”” values=”%5B%7B%22title%22%3A%22Large%20scale%20de-globalisation%20(or%20nationalisation)%20(7%25)%22%2C%22y_values%22%3A%227%22%2C%22color%22%3A%22blue%22%7D%2C%7B%22title%22%3A%22More%20regionalisation%20-%20trading%20between%20regions%20(57%25)%22%2C%22y_values%22%3A%2257%22%2C%22color%22%3A%22pink%22%7D%2C%7B%22title%22%3A%22Trading%20with%20allies%20only%20(3%25)%22%2C%22y_values%22%3A%223%22%2C%22color%22%3A%22sandy-brown%22%2C%22custom_color%22%3A%22%2358b9da%22%7D%2C%7B%22title%22%3A%22Globalisation%20will%20continue%20as%20normal%20(2%25)%22%2C%22y_values%22%3A%222%22%2C%22color%22%3A%22violet%22%2C%22custom_color%22%3A%22%2358b9da%22%7D%2C%7B%22title%22%3A%22Globalisation%20will%20eventually%20reset%20and%20accelerate%20(32%25)%22%2C%22y_values%22%3A%2232%22%2C%22color%22%3A%22vista-blue%22%2C%22custom_color%22%3A%22%23f79468%22%7D%5D”]
The Florida State Board of Administration has made some strategic moves to take advantage of opportunities in the dislocation, including in private equity, distressed debt and active listed equities.. But CIO, Ash Williams, is concerned about the underlying real economy.
As we move from the rescue to the recovery phase of the COVID-19 response, policy-makers have an opportunity to invest in productive assets for the long-term.
Forget traditional portfolios of stocks and bonds, in portfolios of the future, low yielding bonds could be ditched for cash suggest FIS2020 Digital panellists.
FIS 2020 Digital delegates heard how the monetary response has successfully managed many elements of the crisis so far. Getting the next phase of the policy response right, particularly navigating fiscal policy, will be more challenging.
A combination of factors caused by the pandemic has created unprecedented operational risk for institutional investors, including increasing cyber risk.
Globalisation will be replaced by a new regionalism with Asia at its heart. Coupled with automation and AI increasingly replacing traditional labour-intensive production, emerging economies with a youth bulge face challenging time ahead, according to Ian Goldin, professor of globalisation and development, Oxford University.
As policymakers consider policy interventions to support the recovery, investors should be engaging policymakers by providing technical expertise and allocating capital to sustainable investments. A new report by PRI presents a series of recommendations for investor policy engagement and indicative proposals for action.
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