Page 11 - ISQ October 2022

INVESTMENT STRATEGY QUARTERLY

Cumulative Foreign Direct Investments
Cumulative Foreign Direct Investments
(in Trillions of $)
(in Trillions of $)
2.5

2

1.5

1
0.5

0
2015 2016 2017 2018 2019 2020
China United States
Source: FactSet, as of 20/09/2022

earnings transcripts and conference calls, compared to over 75% of going forward. Unfortunately, there isn’t a one-size-fits-all solution
them only a decade ago. to fix global supply chains, but some companies with longer-term
strategies are attempting to expand their supplier base to spread
Governments have started to offer incentives to reshore production the risk despite adding layers of complexity to their supply chains.
to prevent future disruptions. For instance, to move away from its However, in the event of a global economic shutdown such as that
reliance on Taiwanese-made semiconductors, the US has witnessed in 2020, this solution would not make a difference.
announced the CHIPS and Science Act, which includes a $52 billion Globalisation is both a blessing and a curse, but a development that
package aimed at incentivising US production of semiconductor has hitherto generated more benefits than costs from across the
chips. Reshoring certainly has its perks, but it also comes with an industrialised economies of the West. However, just as successful
array of risks.
investors diversify their portfolios through asset allocation to
Outsourcing manufacturing has worked for decades, and has maximise returns for a given level of risk, companies and nations
allowed companies to both be more cost effective and to boost should aim to find a balance between complexity and security.
profit margins while holding product prices down for clients. This
economic interconnectedness has allowed developed nations to
take advantage of emerging economies’ lower cost of labour, while KEY TAKEAWAYS:
emerging economies have benefited from an inflow of foreign • Complex and robust supply chains were a key
investments. Additionally, the US and other developed economies component in the development of globalisation.
have benefited for a long time from foreign direct investments, • Over the last few years global supply chains have
such as foreign automotive manufacturers’ building modern faced a variety of headwinds, ranging from economic
plants in the United States and elsewhere. While these numbers nationalism, a pandemic-induced shutdown, and
are very volatile on a yearly basis, the US alone has received over most recently, a major geopolitical conflict.
$2 trillion in foreign direct investments in the last five years. Thus,
it is clearly in neither China’s nor the developed West’s interest to • The Russia/Ukraine conflict has shown the world
lose such a large inflow of investments in their respective just how interdependent we are and has increased
economies. awareness of the dangers of that interconnectedness.
• Globalisation is both a blessing and a curse, one from
BOTTOM LINE: which developed economy such as the US reaps more
While headline global inflation rates are expected to come down in benefits than not.
due course, the broader consequences of either another
geopolitical conflict or further deglobalisation could be an issue

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