Globalisation vs regionalisation: The impacts for emerging markets

Globalisation vs regionalisation: The impacts for emerging markets

Over the last 20 years, we've witnessed the rise of globalisation. However the COVID-19 pandemic has highlighted the vulnerability of some global supply chains. Will we now see a renewed focus on regionalisation? And what will that mean for emerging economies? 

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© 2020 FIL Responsible Entity (Australia) Limited. Fidelity, Fidelity International, and the Fidelity International logo and F symbol, are trademarks of FIL Limited.

This webpage is issued by FIL Responsible Entity (Australia) Limited ABN 33 148 059 009, AFSL No. 409340 (“Fidelity Australia”). Fidelity Australia is a member of the FIL Limited group of companies commonly known as Fidelity International.

Prior to making an investment decision retail investors should seek advice from their financial adviser. Please remember past performance is not a guide to the future. You should consider the Product Disclosure Statements (“PDS”) for Fidelity products before making a decision whether to acquire or hold the product. Investors should also obtain and consider the Product Disclosure Statement (“PDS”) for the fund mentioned. The relevant PDS can be obtained by contacting Fidelity Australia on 1800 119 270 or by downloading from our website at www.fidelity.com.au. This webcast or podcast has been prepared without taking into account your objectives, financial situation or needs. You should consider such matters before acting on the information contained in this webpage including any linked webcasts or podcasts. This webcast or podcast may include general commentary on market activity, industry or sector trends or other broad based economic or political conditions which should not be construed as investment advice. Information stated herein about specific securities is subject to change. Any reference to specific securities should not be construed as a recommendation to buy, sell or hold these securities. While the information contained in this webcast or podcast has been prepared with reasonable care no responsibility or liability is accepted for any errors or omissions or misstatements however caused. References to ($) are in Australian dollars unless stated otherwise. Investments in overseas markets can be affected by currency exchange and this may affect the value of your investment. Investments in small and emerging markets can be more volatile than other more developed markets. Fund references are correct at time of first publication but are subject to change and may not represent actual holdings in the fund at the time of this viewing. The webcast or podcast may not be reproduced or transmitted without prior written permission of Fidelity Australia. The issuer of Fidelity funds is FIL Responsible Entity (Australia) Limited ABN 33 148 059 009, AFSL No. 409340 (“Fidelity Australia”). 

© 2021 FIL Responsible Entity (Australia) Limited. Fidelity, Fidelity International, and the Fidelity International logo and F symbol, are trademarks of FIL Limited.

So again, that is something where I think the last 20 years we've been through this period of optimization and globalisation. Globalisation of supply chains, optimization of return profiles, just in time technology, et cetera, et cetera. This started with discussions around trade disputes between the U.S. and China, but I actually think that the vulnerability of those global supply chains is really being highlighted by this COVID pandemic. It has two important implications as I see it, the first is that we will likely see some certain amount of unpicking of those global supply chains and the move towards regionalization, and we'll also see businesses accept lower profit margins in exchange for greater certainty of supply and product, and consumers are going to have to get used to that as well. So that obviously has important implications for shareholders in terms of returns on equity over the long term, and I think that where that lends itself to is this idea around regional economic centres, as opposed to one large global supply chain global economy is as we see it today.

And what that will really require to be successful is a large central domestic economy within a particular region, that then provides the demand to support the regional hub or the hubs or spokes that serve the hub. And within emerging markets, there's different sets of opportunities and challenges, so clearly China has a very large domestic economy, and so China, North Asia, Greater China with respect to Taiwan, et cetera, and technology investment, I think is one area that remains a significant position in the portfolio and it's an opportunity going forward. I think markets that rely more on global trade to drive their own investment domestically are potentially more challenged, so South Africa, as a country in particular within emerging markets, which yes, has a certain size of domestic economy, but relies on external trade.

I think that parts of Southeast Asia is a little bit more nuanced. So India has a unique opportunity here. It faces near term challenges as a consequence of the health pandemic and its ability to deal with that, but it has a very large domestic economy, it has the ability to attract capital to invest in infrastructure, that will create reinvestment opportunities for us the shareholders. And I'd also say that parts of Southeast Asia are somewhere in the middle where Indonesia relies on global trade to attract dollar inflows to fund its investment, but it also has 250 million people and a large domestic economy. So there will be opportunities in those market places but they might be still a bit more unique and specific than maybe they are broad-based elsewhere.

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