In our professional calendar one of the highlights is the intense, protein-rich Portfolio Construction Form. The overarching theme this year was: "The future ain't what it used to be."
The Forum is the most comprehensive Australasian conference tailored to our profession, and is notable each year for being extremely well organised and for attracting top-flight speakers to address the questions: where can investors best find opportunities and how to protect their wealth in times of volatility? It gives us perspective in our work.
The advisers at Stuart Carlyon attended online for two solid days – a reminder that everyone is changing the way business is carried out.
The first day sessions started with a look at the big picture, and the second day looked at the practical implications for portfolios. The speakers were well aware that 2022 has given us continued exposure to COVID, the Russian-Ukraine war, teetering oil prices, geo-financial embargoes, floods and fires and the jittery inflation rates that put us on the precipice of a recession.
Two themes we picked up: globalisation dismantling and infrastructure as a hedge against inflation.
One impressive speaker was Rana Foroohar, Financial Times global business columnist and CNN global economic analyst based in New York. She has a book out later this year: Homecoming: The Path to Prosperity in a Post-Global World.
In her view the world economy has retreated from a remarkable period of globalisation where manufacturers outsourced, regardless of place, to find the cheapest labour and materials. In that model, free trade was seen as good for everybody lifting living standards in developing countries and keeping global inflation low. It was the way to achieve a single happy planet.
But, she says, powerful forces are reshaping the domestic and global outlook to take us to a post-global economy where places matter. If economists argued that place doesn’t matter, there are now many other voices insisting that it does. We live in a world where:
- Judgements are made about trading partners. For example, the Russian trade embargo.
- Industry sectors are worried that certain nations have become over- dominant and this creates risk. Example: Taiwan’s pre-eminence as a manufacturer of computer chips.
- Pandemics have pulled back the veneer on underlying problems with capitalism. The much-vaunted efficiencies of globalisation have proved to have weak links. One example is the supply-chain freighting mess that followed COVID, the Ukraine war, and climate events. Now the talk is less of efficiency and more about resilience of supply.
- Globalisation was a star in the crown of the Chicago school of monetarism, but the same crown has a few thorns too. One is inequality – and this has resulted in a fractious, polarised middle-class who have seen wages plateau even while total GNP has soared.
- Localisation is not just about re-shoring supply chains, building local, but is about conserving jobs as well as meeting standards such as sustainability. Localisation is a political solution to societal demands.
Foroohar believes that deglobalisation and regionalisation are not all bad and scary. There are opportunities to rebalance capital and labour, and to better match consumption and production in order to achieve a more resilient economy. For investors, the search will be on for companies that adapt to this new reality and actively change their economic thinking to one based on community, sustainability, and equity. Technological innovation is the key to achieving efficiencies and has now made it more possible to keep operations, investment and wealth closer to home.
The rise of local, regional, and homegrown business is now at hand. This will mean less dependence on China for cheap labour as well as the return to a world order where there are three main blocs namely: Europe and Africa; China and Asia as well as the US and its political partners in NAFTA. In her view Russia will continue to be somewhat isolated.