Judged by the free exchange of ideas, the world has never been a more global place. But viewed through an economic lens, in terms of the free movement across borders of goods, capital and labour, there is no doubt that globalisation has slowed. While trade wars have certainly been a factor recently, globalisation has, in fact, already been on the retreat for the better part of the last 15 years.’ says Global Financial Markets Specialist Nicholas Glinsman
Nicholas appears on my current affairs programme on a regular basis to give updates on the global financial markets. We started doing this on the outbreak of COVID-19 but it has become a feature that local audiences wait for.
Nicholas says: ‘Globalisation began to plateau just before the Global Financial Crisis, as trade volumes started to flatten out relative to overall output. The experience was much better than that seen through the interwar period, when the economy de-globalised, and more similar to the 1970s and early 1980s, when globalisation flattened.
But why did globalisation flatten out in the last 10-15 years? Firstly, the positive one-offs of the 1990s were always going to be a hard act to follow. But, in addition to this organic slowing, the nature of spending changed in a manner that further slowed globalisation. In nominal terms, the texture of consumption and investment increasingly shifted from material to intellectual; from goods and commodities to services. There has been little slowdown in global trade in services so far, but this equates to just a quarter of the global trade in goods, which has slowed much more sharply, so that overall globalisation has slowed down.’
With the decline in commodity prices since 2011, the terms of trade shift from goods and commodities towards services became very apparent, changing the earnings picture, especially for Europe and EM, where earnings are driven more by trade in goods and commodities, relatively speaking. There was no slowdown in trade in services. US earnings, which are driven more by exports of services, have remained strong, helping equity performance, both outright and relative.
So, we have moved from hyper-globalisation to a slowdown in globalisation. It is now likely that globalisation will go into complete stasis, or worse. As Sebastian Mallaby states, EM will suffer far more than DM, and given the EU’s dependence on “supply-chain-addicted widget-makers”, it remains more likely that the EU will suffer likewise relative to the US, although I would include with the US other Anglospheric countries, in particular the UK.
Given the above, I would posit that we have just seen this process in short, sharp relief with the economic lockdown. At a company level, just consider what happened to Amazon, the tech US service company that has flourished, versus Adidas, a German company dependent on its Asian supply chain, which essentially sold no shoes and took bailout money from the German government.
Expect this dynamic to continue well into the future.’
Nicholas Glinsman, Global Markets Specialist
Nicholas Glinsman has over 35 years’ experience in the financial markets, working at some of the largest institutions in the USA, Europe and Brazil. Over the last 20 years, he has been partner, portfolio manager and an advisor on global markets to some of the biggest hedge funds in the world. Mr. Glinsman started his career in 1986 at Merrill Lynch, where he was singularly responsible for building Merrill’s position as the largest presence in a highly profitable segment of the Euro-Convertible bond market. He then went on to be an integral part of the management team that helped build Merrill’s presence in the European government bond markets. In 1990, he moved to Salomon Brothers and became the head of the European futures product, responsible for all aspects of that business across the global distribution network. Mr. Glinsman is an alumni of the London School of Economics and Political Science.