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The Covid pandemic, the war in Ukraine and rising US-China tensions have altered the flow of goods and services. Global trade has not reduced but trading patterns are changing. For example, China’s exports to the US have fallen while its trade with other countries in Asia has risen, and the sale of Russian oil and gas to India and China has increased at the same time as flows to Europe have declined.
The significant overseas investment programmes undertaken by China, and growing wealth across Asia, are also altering the movement of materials and capital.
This theme assesses these trends and the potential investment implications.
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Supply line changes
- As a result of the pandemic and deteriorating political relationships between countries, the era of finding the cheapest source of production regardless of location (globalisation) has ended. Now countries look to locate production either at home (on-shoring) or with politically aligned neighbours (friend-shoring). These changes in production can bring with them higher costs, thereby feeding into the higher-for-longer inflation trend and forcing countries to seek new alliances. The capital required to make these changes can affect currency values as well as domestic interest rates.
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China trade investment
- The ‘Belt and Road’ initiative, adopted by China in 2013, is a global infrastructure development strategy designed to cultivate new markets for trade and provide finance to build the necessary infrastructure. It has opened new markets but at the same time led to greater dependence on capital from China.
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Asia’s growing wealth
- Asia has seen some periods of strong economic growth and with this has come a steady increase in income per capita as well as a rise in domestic savings. This naturally changes the flow of goods and services as individuals purchase more expensive items and can spend money on experiences rather than just the basics.
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Your capital may be at risk. The value of investments and the income from them can fall as well as rise and investors may not get back the original amount invested.
These opinions should not be construed as investment or other advice and are subject to change. This material is for information purposes only. Any reference to a specific security, country or sector should not be construed as a recommendation to buy or sell investments in those countries or sectors. Please note that holdings and positioning are subject to change without notice.