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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.
Political regimes around the world are stuck in a series of dead-ends and despair. Most importantly, the China-US relationship has hit a brick wall as their fundamentally different values and interests clash. Deterrents and robust policy is the only way forward, says Stephen Kotkin, professor in history and international affairs, Princeton University.
Nobel prize winner Esther Duflo suggests institutional investors can help alleviate poverty by fostering new supply chains and looking beyond a country's credit rating. She said there is an "unacceptable" level of poverty amongst Africa Americans and Latinos who are keeping the US economy going but dying for it.
Global asset manager Robeco has found proactive stewardship triggers important changes in corporate behaviour. Chief executive Gilbert van Hassel urges FIS 2020 Digital delegates to do the same.
In a fireside chat, CIO of CalPERS Ben Meng talks about how the fund wants to use leverage to push deeper into private assets, while Ronald Wuijster, chief executive officer, APG Asset Management said the policy response has made taking advantage of buying opportunities difficult.
Investors should use stewardship to encourage purposeful companies that provide long-term value by meeting the needs of multiple stakeholders and helping improve society. But what is a purposeful company?
Understanding the two policy making camps in China - one which is concerned about debt and one which is worried about a slowdown in growth - is key to understanding China's position in the global economy, says professor of finance at Peking University, Michael Pettis.
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