Investing in a Less Connected World
Persistent Crises Test Globalization
Over recent years, a number of developments have exposed the vulnerabilities of global integration; COVID, US-China tension, Russia’s invasion of Ukraine, supply chain disruptions, stubborn inflation, disparate monetary policies, the recent economic implosion in the U.K. (the list goes on).
A New Economic Period Has Begun
Rather than a reversal of globalization, we believe that we are entering a period that The Economist has coined as “slowbalization” in which the expected pace of global integration will slow, regional economic blocs will become more important and the world will be less interconnected.
Structural Shift Has Unique Upsides
The change in composition of the world economy will present new opportunities and have investment implications for which BBR is well positioned. Paradoxically, deglobalization may enhance the role of international investments as part of a diversified portfolio. Non-US exposure has become an important component of our portfolios and we believe many geographies will continue to have a key role in our portfolios going forward in this new normal. The opportunity also extends to domestic investments as the world will likely place a greater emphasis on improving localized capabilities in manufacturing and infrastructure.
There Are New Risks Too
Less connected markets will cause us to reevaluate the benefits of liquid versus less liquid strategies by region, and risk/return and correlation profiles more broadly. We will continually assess how this new backdrop might affect markets and will proactively make changes in portfolios, as we’ve always done. In this environment, the recent past may be even less instructive of what the future holds than normal, and investing for the future will require creativity and adaptability.