- Geopolitical Strategist
Spain, Institutional
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This is an excerpt from our 2023 Investment Outlook, in which specialists from across our investment platform share insights on the economic and market forces that we expect to influence portfolios in the year to come. This is a chapter in the Global Economic Outlook section.
Geopolitical turmoil and global policy shifts have been two of the most defining macroeconomic characteristics of 2022. Structural and interlocking global challenges represent a significant departure from previous, more benign geopolitical and macro environments. We explore themes that prudent investors may do well to watch in the new year and beyond and outline how these changes could offer opportunities for discerning investors.
Five themes to focus on in 2023 and beyond
To determine the global investment risks and opportunities that lie ahead, we will be keeping an eye on several interconnected macroeconomic themes, including:
- Deglobalization: The COVID-19 pandemic gave way to an ongoing wave of supply-chain disruptions that fractured IT infrastructure. This, in turn, raised questions around national security, pushing policymakers toward deglobalization policies, a trend that could accelerate in the future. Sectors and industries likely to be impacted include:
- Semiconductors
- Biotechnology
- Renewable technologies
- Critical minerals
- Artificial intelligence
- Space-related technologies
- Advanced manufacturing
- Next-generation communications
- Robotics
- Other civilian and military sectors
- Some financials
- Inflation and higher interest rates: In the wake of the pandemic, the global economy is experiencing structurally higher inflation, which global central banks are trying to tamp down with higher interest rates. The net effect of this is slower global growth, which has knock-on effects for the future.
- Higher great-power conflict risk: Tensions are high among many great global powers. This implies heightened military risk, higher cybersecurity risks, and deepening policy risks.
- Increasing militarization of the Indo-Pacific and Europe: These regions have exhibited higher defense spending amid a stepped-up multilateral defense alliance and other institutional responses. We expect global competition to intensify.
- Political events: Deepening policy rifts in many nations can incite both domestic political friction and global dysfunction. We’ll be closely watching the impacts of various global political events, such as China’s 20th National Party Conference, the US midterm elections, upcoming European elections, and 2024 presidential elections in both the US and Taiwan.
How do these trends influence our investment outlook?
We believe that the shifting geopolitical and policy environment will be disruptive for a long time. Against this backdrop, companies are likely to become more differentiated from one another, which could present compelling investment opportunities. This environment also lends itself to thematic strengths across regional, country, industry, company, asset, and asset-class lines, particularly for active managers that are well equipped to identify the could-be thematic winners.
The bottom line is that we believe there are both risks and opportunities associated with global geopolitical and policy changes. For actively managed investment strategies, some of these shifts could offer marked structural advantages for years to come.
Experts
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