With trade relations more fragmented and the potential for a great power rivalry between the U.S. and China, investors need to be ready for a new paradigm.
June 5, 2023
Vice President, Portfolio AnalystPortfolio Advisory Group – U.S.
This is the first article from the “Worlds apart” series, which explores the trend away from globalization and its ramifications for investors, economies and financial markets. The following is an executive summary of the full article .
Globalization boosted economic growth, corporate earnings, and stock prices for decades. But in recent years globalization has stalled out. It seems at risk of breaking down into deglobalization as geopolitical tensions persist.
The line chart shows the proportion of global GDP based on purchasing
power parity for G7 and BRICS countries annually from 1995 through
2028; data from 2023 through 2028 are based on IMF projections. In
1995, there was a wide gap between the two groups with the G7 at 45%
and BRICS at 17%. The G7’s GDP as a proportion of global GDP has
declined meaningfully since then, while the BRICS countries’ GDP as a
proportion of global GDP has steadily climbed. The IMF projects this
trend will continue through its forecast period of 2028. The G7 and
BRICS share of global GDP was equal in 2020 at 31%. Thereafter G7 had
declined to 30.4% and BRICS increased to 31.6% by 2022. By 2028, the
IMF projects the G7 will decline to 27.8% and BRICS will rise to
* Data from 2023 through 2028 are IMF projections.
Source – RBC Wealth Management, IMF database; data as of 5/17/23
BRICS and the SCO seek to form a “multipolar world” wherein a number of countries would play global leadership roles.
We think major shifts in relations between great powers change the investment environment.
There are, however, downsides to the drift away from globalization. We view onshoring and friend-shoring as old-fashioned protectionism with new, more palatable names.
We believe these trends argue for rethinking portfolio allocations.
For in-depth information, please see the full report: Worlds apart: Risks and opportunities as deglobalization looms .
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