Could the globalisation elephant begin a stampede to protectionism?

Popularly known as the globalisation elephant thanks to its shape, the chart above describes how, between 1988 and 2008 the real incomes of both the world’s richest and poorest people soared. In contrast, lower earners in developed countries saw their real incomes fall. Since then, the global financial crisis and its aftermath have seen average worker real incomes in much of the developed world stagnate. In the UK, average weekly earnings are still significantly (7.7%) below their 2008 peak in inflation-adjusted terms.

We think the chart helps explain why populist politics have taken root in developed markets. If you’re part of that ‘squeezed middle’, globalisation is likely to have been less a force for good and more a source of anxiety over the past three decades. No surprise, then, if people have turned to new political voices in search of solutions. Certainly in the US, President Trump has made clear his desire to put America first – but in other countries too, a shift in grass-roots opinion suggests the developed world’s middle classes are questioning whether free trade is in their best interest.

Yet this kind of rhetoric ignores a fundamental problem, namely the much higher cost of labour in developed markets. If more tariffs were put in place in the US, for example, this would just increase the cost of these goods for US consumers. And even if some manufacturing production were re-shored, this would likely be automated to a very high degree with few additional jobs created. Finally, given the potential for retaliatory measures from other countries, we think any rise in protectionism would be a lose/lose situation, with a very real possibility of higher inflation and lower GDP growth.

Douglas Reed – Newton, a BNY Mellon company

Popularly known as the globalisation elephant thanks to its shape, the chart above describes how, between 1988 and 2008 the real incomes of both the world’s richest and poorest people soared. In contrast, lower earners in developed countries saw their real incomes fall. Since then, the global financial crisis and its aftermath have seen average worker real incomes in much … read more

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How Argentina came in from the cold

Upon assuming office in 2015, President Mauricio Macri and his economic team immediately set about reforming Argentina’s economy – dismantling capital controls, allowing the currency to float freely and settling a long-standing dispute with creditors. Argentina now reaps the benefits of these reforms with growth and confidence returning once more.

These reforms have also led to positive developments for Argentina’s debt markets, a fact that was perhaps most clearly observed last year when Argentina announced its return to the international bond market with a record-breaking US$16.5 billion dollar-denominated issuance.

Less observed, however, has been the development of, and increased demand for, Argentinian peso-denominated paper as the government’s efforts to rebuild the local currency bond curve start to bear fruit.

We think investors will remain willing consumers of these bonds as long as they can continue to hedge the currency exposure with no impediments to capital repatriation. While for Argentinian corporates, the ability to issue in domestic currency eliminates liability currency mismatches.

Argentina’s debt markets have undergone a remarkable transformation against a backdrop of profound economic and political change. The confluence of development of sovereign, local currency, corporate and foreign exchange markets provides a unique opportunity for investors to gain exposure to this improving story and access what we think constitute some of the most attractive and compelling yields around.

Oliver Williams – Insight, a BNY Mellon company

Upon assuming office in 2015, President Mauricio Macri and his economic team immediately set about reforming Argentina’s economy – dismantling capital controls, allowing the currency to float freely and settling a long-standing dispute with creditors. Argentina now reaps the benefits of these reforms with growth and confidence returning once more. These reforms have also led to positive developments for Argentina’s … read more

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Could these EM challengers displace Silicon Valley?

Could US tech stocks be eclipsed by a new wave of emerging market (EM) challengers? We think that’s a key question for the coming months and years as China and India pick up the pace in their adoption of new technologies.

We note, for example, that China has some 40% of the world’s artificial intelligence (AI) scientists as well as five of the 10 most highly valued tech ‘unicorns’.*

Global internet usage and e-commerce statistics paint a similar picture. In 2015, for example, India displaced the US as the second largest internet user population. India is also building a global lead both in its number of smartphone users and the number of e-commerce sales transacted on mobile phones.

We think this highlights an important point. For all their status as the darlings of Wall Street, the current crop of US tech leviathans face a serious challenge. As EMs create their own centres of expertise, we believe investors may be well served by looking beyond the narrow confines of Silicon Valley to a wider world of global innovation.

Drew Guff – Siguler Guff, a BNY Mellon company

* Unicorns’ are defined as unlisted tech companies with a valuation above US$1bn.

Could US tech stocks be eclipsed by a new wave of emerging market (EM) challengers? We think that’s a key question for the coming months and years as China and India pick up the pace in their adoption of new technologies. We note, for example, that China has some 40% of the world’s artificial intelligence (AI) scientists as well as … read more

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Can China maintain its role as an engine of global growth?

Since its accession to the WTO in December 2001 China has accounted for an increasing share of the global economy. Helped by fast export and investment growth it remains an engine of trade and is expected to generate some 35% of global growth over the next two years, according to the World Bank’s latest forecast.

The country is also plagued by structural challenges however, most notably the uncomfortable legacy of a massive state-inspired credit expansion in the wake of the global financial crisis. As such, it’s attempting a tricky transition from a credit-fuelled growth model that is overly reliant on investment to one more driven by private consumption and services. It remains unclear how the dynamic between cooling credit growth and supporting GDP growth will ultimately unfold.

The good news is that China’s economy has been gradually but demonstrably rebalancing towards a growth model that is less reliant on investment, with new industries coming to the fore. Our base case is therefore for China to continue to slow down structurally, with growth being supported as necessary by the authorities as they manoeuvre policy settings to bring this about gradually.

We believe this provides an opportunity for investors to gain exposure to companies benefitting from China’s rapidly expanding services industry and fast-growing middle class. We remain cautious on banks given the probability that asset quality becomes more problematic as the cycle continues.

Douglas Reed – Newton, a BNY Mellon company

Since its accession to the WTO in December 2001 China has accounted for an increasing share of the global economy. Helped by fast export and investment growth it remains an engine of trade and is expected to generate some 35% of global growth over the next two years, according to the World Bank’s latest forecast. The country is also plagued … read more

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The remittances spike and its impact on global capital

Remittance flows have become an increasingly important element of global capital flows. As labour markets have become more globalised, workers move from developing countries in order to obtain higher salaries in the developed world. Often these workers continue to support family members in their country of origin and regularly send a portion of their salary to them. In countries such as Mexico and India, governments have worked with the banking industry to lower transaction costs and make the process more efficient. As labour markets in developed countries tighten, so the upward trend should resume. One danger is that the size of these flows is now drawing political attention in some developed countries and could become a discussion target for trade negotiations if imbalances become too high. That said, we don’t believe we are quite at that stage yet.

Colm McDonagh – Insight, a BNY Mellon company

Remittance flows have become an increasingly important element of global capital flows. As labour markets have become more globalised, workers move from developing countries in order to obtain higher salaries in the developed world. Often these workers continue to support family members in their country of origin and regularly send a portion of their salary to them. In countries such … read more

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