Friendshoring, nuclear buttons and a space race: what geopolitics is telling investors

For ordinary citizens, this sense of a lack of security shades almost every decision we make. For example, it colours who we vote for - an important consideration in a year of general elections globally. 

It colours where we choose to live; do we move further away from city centres into the countryside, or seek new shores on even newer passports? 

It also influences how we spend and invest our money: new ethical dilemmas are disclosed with each politically strategic move on the board, while old economic partnerships become more fragile. 

A recent report from UN Conference on Trade & Development has cited a trend of global divergence to political fracturing over recent years. 

It is the end of globalisation.John Plassard, Mirabaud

In the 57-page document, Global economic fracturing and shifting investment patterns, the UNCTAD states: "The transition from divergence to fracturing in global investment patterns emerges as a key concern.

"Recent global conflicts and crises have disrupted usual investment patterns, leading to unstable investment relationships and limited chances to benefit from strategic diversification."

According to the report, investment decisions (such as foreign & direct investment) are now more frequently influenced by geopolitical factors, at times overriding economic determinants.

This ends up complicating standard approaches to investment promotion and hindering FDI-based development, according to the report. 

Bearing in mind that UNCTAD also predicted the possibility of higher inflation later on in 2024 as a result of ongoing trade route disruption, and the picture might be a little more bleak than many analysts believe.

Factors pointing to deglobalisation

Fund management groups are already noticing and acting on this trend.

Schroders says deglobalisation is part of the "3D Reset": the other two being decarbonisation and demographics.

Mark Lacey, head of thematic equities at Schroders, says there are several sectors where deglobalisation is causing pricing dislocation, but one has played particular havoc with portfolios and inflation: energy.

He says: "Geopolitical instability in recent years has laid bare the risks of interconnectedness or globalisation, particularly when it comes to energy."

Ongoing conflicts in Europe and the Middle East have threatened the consistent delivery of oil and gas and he believes the Covid-19 pandemic was the beginning of a multi-year period of "global disruption, dislocation and bottlenecks".

He adds: "The deglobalisation dynamic that we are seeing, as part of the 3D Reset, has hastened the need for governments and populations to quickly identify secure energy sources with low geopolitical risk—conventional supply that is closer to home or located in stable, democratic regimes."