Globalisation in the past four decades was driven largely by cost optimisation, underpinned by the relative free flow of capital and trade — at the expense of resilience. And it is deflationary, which fed consumerism in the developed world and created immense wealth for capital owners. This trend is now reversing — and will continue to reverse.
There is, we think, more downside to US — and global — stocks despite having suffered the worst first half-year selloff since 1970, according to Dow Jones Market Data. The bond market, often seen to be the ballast for riskier stocks, fared no better, posting the worst start to the year in decades. The selloff in both stock and bond markets this year has been steep, gaining steam rapidly as inflationary pressures mounted, particularly after Russia’s invasion of Ukraine. This, in turn, has forced the US Federal Reserve to pivot to a far more aggressive stance to combat inflation, which is currently running at highs not seen since the early 1980s.
We now believe high prices will persist for longer, not only because of the prevailing pandemic- and war-driven supply disruptions and shortages — which are taking longer than expected to unwind — but also due to the longer-term fallout, specifically the geopolitics.
