The global investment environment is increasingly fragmented. Although it has become the norm to say we live in a globalized world, we are also witnessing growing schisms within the “global village.”
This is not “reverse globalization,” but rather a process that has arisen from globalization itself, in many ways triggered by the 2008 financial crisis. The fragmenting world has important implications for investors.
Fragmentation in the Global Village
At a macroeconomic level, globalization has led to increasing economic integration. However, the financial crisis has halted and in some cases reversed this trend. What we are witnessing today in Europe is a prime example.
At a microeconomic level, although average economic well-being has improved, income inequality has increased in nearly every country, and has risen twice as fast in developed countries over the last 30 years. In the United States, for example, the richest 1% earns almost a quarter of all income, up from 13% in the early 1980s. The top 20% of the population owns 93% of the country’s wealth and earns 60% of total income.
Events in the Middle East have provided a salient example of how the pre-crisis order has broken down. In December 2010, the self-immolation of a Tunisian fruit seller set in motion a chain of historic events, culminating in the removal of four long-standing autocrats. Now, the countries of the Middle East stand at an important juncture, with some (Egypt, Tunisia and Libya) potentially on the verge of democratization.
A Volatile Environment
Climate change also exacerbates these schisms, adding another unpredictable element for global investors to contend with. The U.S. is currently in the midst of its worst drought in 50 years. As a result, corn, wheat and soya prices have spiked, with the price of corn for year-end delivery up over 50%.