Globalization—among the most potent forces driving the economy and markets over the last four decades—is reversing. Our playbook explores the many implications of this seminal shift and analyzes how it will fundamentally alter the investment backdrop.
Globalization surged from the 1980s to the mid-2010s, bringing with it a tsunami of cheap goods that reinforced the low macro volatility of the Great Moderation. This environment enabled corporate profits to soar, delivering unprecedent equity market returns fueled by exploding free cash flow margins.
But globalization has likely peaked, with wide-ranging consequences for the global economy, policymakers and investors. What started as trade tensions between the U.S. and China has been steadily ratcheted higher. The pandemic showed the multi-decade global integration of supply chains is now a glaring vulnerability. Geopolitics has laid bare the need to reassess energy and other commodity reliance, and to pivot to strategic partners.
Globalization expanded for decades, and the shift away will likewise be measured in years and decades, not months or quarters. But there are already signs that some unwinding of globalization has begun. High U.S. inflation, the rapid and aggressive monetary policy cycle, and volatility in financial markets are due in part to the early anticipation that we are entering challenges that feel unlike the past several decades. Our playbook breaks down how deglobalization stands to impact investors, and where in the world to find investment solutions.