Economic nationalism a threat to equities | Australian Markets

The growing pattern in direction of financial nationalism might finally damage worldwide equities, in accordance to Talaria Asset Management chief investment officer, Chad Padowitz.

Discussing Talaria’s latest quarterly outlook, Padowitz famous that the worldwide economic system is shifting from a period of world integration, which started within the early Nineties, in direction of a period of heightened nationalism and trade protectionism, led by the US.

“Geopolitical events, including economic nationalism and onshoring, require a fresh assessment of capital, risk, and how countries depend on each other,” he mentioned. “We are in the midst of a fundamental change to the global integration we’ve witnessed in the past three decades.”

Governments globally are more and more influencing capital motion via insurance policies that encourage home investment. Examples embody the UK’s Mansion House reforms, which intention to direct up to US$65 billion into home tasks by 2030, European proposals for defence bonds, and modifications to the Australian Future Fund’s mandate.
“All these initiatives are designed to reduce the flow of capital to other regions or countries,” Padowitz mentioned.

“This trend shows a broader increase in economic nationalism, a force that has grown stronger and is causing governments to direct capital within their own borders.”

The COVID-19 pandemic highlighted the hazards of long abroad provide chains and confirmed that western home manufacturing was not resilient enough, accelerating the shift in direction of inside focus. US coverage modifications this yr below the Trump administration have fast-tracked this transfer in direction of nationalism and onshoring.

“A shift in US policy, America First, has further driven a turn inward, firstly in the US but then in other countries that had previously been happy to rely on overseas production,” Padowitz mentioned.

For traders, Talaria says all this may increasingly mark the top of a period of robust asset price will increase, the place nominal money movement growth and the price of funding moved in ways in which considerably elevated the worth of many belongings.

“There is a lot of noise in financial markets today. The broader battle for attention that now drives the media has resulted in a distracting cacophony,” he mentioned.

“Beyond the noise there are a number of important developments for traders to take into account, but when we had to determine a single merchandise not to lose sight of it will be this: because the financial regime transitions, the situations that underwrote rising valuations throughout a vary of belongings are no longer in place.

“Our approach for this new environment is to prioritise resilience. This means focusing on short duration assets, companies with strong balance sheets, exposure to real assets, and strong diversification to manage investments in a world characterised by fragmentation and increased uncertainty.”