Deglobalisation is here and is not going away soon. It represents a powerful reaction on geo-political realities, climate-related imperatives, and global macroeconomic regime change. But it is not just shaking up corporate broad rooms and forcing the C-suite to rethink strategy. It is also forcing investors to adjust their models for lower stock value expectations.
Investors' focus today is finding investment managers that are able to identify the corporate winners and losers from deglobalisation. But that requires managers with a deep understanding of how the corporate world will look in 2030 and beyond.
Deglobalisation has many interrelated dynamics that will affect stock valuations:
- Western governments are introducing incentives, regulation and new demand that encourages firms to embrace domestic production (e.g. The Inflation Reduction act, the Chips Act, and increased defence spending in the US).
- With the end of the four decade trend towards free money, CFO's are now faced with a higher and rising cost of capital. This will heighten capital allocation decision vigilance and ROI hurdles.
- As reshoring takes hold, margins may come under pressure, driven by higher domestic wage and input costs.
- At one extreme, domestic manufacturing may see a renaissance. And at the other extreme, new tech start-ups may need to deliver profitability before securing funding.
- East-West trade agreements may come under pressure as governments compensate for a deglobalised demand curve for their products, which in turn could alter both import tariffs and domestic subsidies.
It will take time before the new deglobalised equilibrium has been found. For now, investors are mapping out the possibilities, how to manage the risks, and how to maximise returns under a deglobalised configuration.
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