PGIM study shows: Globalization is alive, but it is changing fundamentally

Rather, globalization has moved in two distinct and separate directions: most sectors and trade patterns are evolving at a rapid pace, while a smaller but critical part of the economy is experiencing strong deglobalization, according to a new study by PGIMthe $1.38 trillion global wealth management division of Prudential Financial, Inc (NYSE: PRU).

For investors, this "twin-track" world presents new opportunities and risks in different countries and industries such as AI, high-end semiconductors, 5G telecom networks, rare minerals, fossil fuels, electric vehicles and military technology. This underlines the need to stress test portfolios and manage strategic investments in a dynamic and fragmented global economy.

In "A New Era of Globalization", PGIM's megatrend research team explores the concept of this twin-track globalization era and finds that despite recent tariff measures and the prospect of an ongoing trade war, around 75 % of the world's economy continues to ride the "fast lane" of globalization - relying on efficient global supply chains and not held back by national security concerns.

"Increasing geopolitical tensions and trade restrictions could give the impression that the pendulum of globalization is swinging strongly in the opposite direction and that national interests are being played off against the global common good. However, the reality is much more nuanced," explains Shehriyar Antia, Head of Thematic Research at PGIM. "Even as America's protected economic space expands, about 80 percent of global trade takes place outside the U.S., and companies in most industries will still want to take advantage of free trade and competitive advantages."

Investment opportunities despite new risks in trade and supply chains

Investors should not simply ignore sectors that are losing momentum as a result of globalization due to tariffs and industrial policy. Instead, they should consider the structural advantages that individual companies and parts of the value chain can have over others:

Artificial intelligence and high-performance semiconductors

The rivalry between China and the US is further fragmenting the market for high-performance computer chips, which are crucial for AI applications. However, industry leaders such as TSMC (Taiwan Semiconductor Manufacturing Company) have customers in different segments and have already started to diversify their geographic footprint to minimize regional risks.

Electric vehicles

Manufacturers such as Tesla and the Chinese company BYD have secured an early leadership position as the world switches to electric vehicles. Despite high tariffs in Europe and the USA, BYD has growth opportunities in South East Asia, Latin America and the Middle East and is entering the luxury market. Tesla is focusing on self-driving cabs with huge market potential.

Logistics real estate on the border between the USA and Mexico

Despite a dynamic and unsettled trade environment between the two nations, nearshoring dynamics are providing a tailwind for logistics real estate along the U.S.-Mexico border as demand from large multinational manufacturers is constant and goods arriving on U.S. soil need to be reloaded.

Metals and minerals

The projected long-term demand for metals such as copper, which are critical to several important industries, currently exceeds supply. Two pure copper mining companies - Ivanhoe Mines and Ero Copper - are characterized by solid growth prospects, while Southern Copper and Freeport-McMoRan are positioned as large diversified producers with corresponding economies of scale.

Identifying the national winners for nearshoring

Investors may find attractive opportunities in countries that are well positioned to become nearshoring candidates - with existing manufacturing capacity, advantageous access to free trade zones or competitive advantages in the business environment and labor costs:

South America:

• Chile and Peru as the main suppliers of minerals in high demand, such as lithium and copper
• Brazil for the rapid expansion of rare minerals mining, which has taken the country from zero exports to the fifth largest lithium exporter in the world in less than two years

Asia-Pacific region:

• Australia for a wide range of metals and minerals
• India for scaling modern electronics and pharmaceuticals
• Vietnam for its low-cost production base in the clothing and electronics sectors

Europe, the Middle East and Africa:

• Poland and the Czech Republic as nearshore centers for EU manufacturers competing with the higher production costs in Western Europe
• Morocco for pharmaceutical and automotive supply chains

"Protectionist trade and industrial policies are on the rise again and are causing turbulence in global markets," says Taimur Hyat, Chief Operating Officer of PGIM. "In the long term, however, it is crucial for companies and their investors to produce where it is most cost-effective and efficient. It is therefore likely that globalization will prevail in industries that make up the majority of the world economy and cannot be easily pigeonholed into a national security concept."

Further information can be found in "A New Era of Globalization: Shifting Opportunities in a Dual-Track World" or under pgim.com/megatrendswhere you can gain additional insights for investors.

This article originally appeared on m-q.ch - https://www.m-q.ch/de/pgim-studie-zeigt-globalisierung-lebt-aber-sie-veraendert-sich-grundlegend/