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The End of Sovereignty?
Jul 17, 2018
Globalization, nationalism and the 5 key investment implications for institutional investors.
Never before in history have people, information and capital moved across borders at the speed, frequency and volume we see today. Here, PGIM’s investment experts and thought leaders voice their insights on the escalating tussle between globalization and nationalism, the consequent implications for global financial markets, and how long-term investors may best position themselves to navigate these uncertain times.
Key Investment Implications
The tussle between globalization and nationalism could have significant implications for global markets and the investment landscape. In this video, Hyat discusses five profound implications to help long term institutional investors rethink their investment approach.
PGIM Megatrend Series
Long-term views on the investment implications of global megatrends.
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Threats to sovereign control
Sovereign nations are increasingly met by forces beyond their borders. As such, many of today’s key political questions arise from how nations will deal with these challenges. Here, Arvind Rajan, Head of Global and Macro, PGIM Fixed Income, expands on the threats to sovereign control and the key considerations for investors.
Implications for global fixed income
Investors must evaluate the impact of geopolitical events such as the trade tensions between the US and China, Brexit, and the rise of populism in Europe. In this video, Arvind Rajan, looks at how today’s complex market environment could create rich sources of Alpha for investors.
Two Powerful trends reshaping the geopolitical landscape
1. Rumors of the demise of globalization are greatly exaggerated.
Cross-border flows of financial, human and digital capital are reaching high water marks—with new technologies further accelerating the pace of global change.
The demise of globalization are exaggerated
70
of the top 100 global “economies” are now multinationals¹40%
of firm revenues in the S&P 500 and the MSCI Europe Index are sourced from outside their home markets²60%
The average cost of cybercrime for large firms has increased over 60% in the last 5 years³
2. A populist backlash against globalization has taken hold in developed markets—at times focused on free trade and at times on immigration.
The momentum behind global integration and the “borderless” challenges this has created is seen as a threat to state sovereignty – and now, nation-states are taking a variety of actions to wrest back control.
Three potential responses to monitor
- A populist backlash in developed markets potentially threatens the agreements global trade is built on
- Crackdown on cyberspace and the media
- “Carrots and sticks” approach to encourage the return of the “local” multinational
Key investment considerations
The escalating tussle between globalization and nationalism could have significant implications for global markets. As a result, institutional investors may want to consider rethinking their investment approach across 5 primary areas.
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1. “Countries vs corporations data set”, Global Justice Now, September 2016. <http://www.globaljustice.org.uk/resources/countries-vs-corporationsdata… opens in a new window>; size of economies is measured by revenue.
2. Gupta, Abhishek and Subramanian, Madhu, “Economic Exposure in Global Investing: Tilting Portfolios Based on Macroeconomic Views”, MSCI, October 2014; Silverblatt, Howard, “S&P 500 2016: Global Sales”, S&P Down Jones Indices, July 2017; S&P data.
3. "2017 Cost of Cybercrime Study: Insights on the Security Investments That Make a Difference”, Ponemon Institute and Accenture, 2017. <https:// www. accenture.com/t20170926T072837Z__w__/us-en/_acnmedia/PDF-61/Accenture-2017-CostCyberCrimeStudy.pdfPDF opens in a new window>; Large firms defined as having over 1,050 employees.