Persisting De-Globalization and Its Impact on Investment Strategies Based on Geographical Location
In the face of rising geopolitical uncertainties, institutional investors worldwide are adapting their strategies to navigate the shifting landscape of de-globalization. Despite concerns about geopolitical risks, many investors remain cautious yet opportunistic, viewing volatility as a long-term opportunity rather than a deterrent.
Regional nuances are significant in this context. Investors in Greater China, Japan, and Europe are showing a tendency to source more domestic revenues, reversing a prior trend of internationalization. This strategic pivot towards self-sufficiency and risk reduction is a response to the increasing protectionism that disrupts traditional globalization patterns.
In the United States, investors are exhibiting a "flight to safety" in cash due to high geopolitical concerns, yet a third plan to adopt aggressive risk strategies by 2025. The U.S.'s trade policy reshaping has accelerated deglobalization, influencing investment into sectors such as infrastructure, aerospace & defense, industrials, and cybersecurity - industries aligned with national security and supply chain localization efforts.
Emerging Markets (ex-Asia) are indirectly affected by fragmentation and shifts in global supply chains, making investment more complex due to inflationary pressures and the loss in global GDP growth attributable to market fragmentation.
Hedge funds and private equity strategies are adapting to these changes. They are increasingly accounting for heightened geopolitical risks, supply chain disruptions, and the re-localization of revenues. Investment is being focused on sectors and companies that benefit from deglobalization, such as infrastructure, defense, and essential services.
Alternative investments are also positioning themselves to harness volatility by "deglobalization scoring," selecting companies with strong domestic revenue bases and healthy balance sheets to mitigate global supply risks. Regional investment strategies reflect local political-economic dynamics, prioritizing domestic over international revenue exposure, as seen in Japan, Europe, and the U.S., affecting portfolio construction at the country and sector levels.
Broader economic impacts include a forecasted annual global GDP loss of around 5% due to market fragmentation, prompting investors to seek more resilient systems by reducing single-point risks in their portfolios. Inflationary pressures are partially countered by investment in sectors that could benefit from increased inflation, such as energy and materials, relevant to private equity and hedge funds seeking inflation-hedged returns.
In summary, institutional investors across regions are embracing alternative investment strategies that balance risk with opportunity amid deglobalization, emphasizing domestic revenue resilience, strategic sector tilts toward deglobalization beneficiaries, and increased cash allocations and risk management to navigate ongoing geopolitical and economic shifts. These patterns reflect a global recalibration towards less globalized, more regionally focused investment portfolios in hedge funds and private equity.
[1] AlphaWeek, "Institutional Investors' Strategies Amidst De-globalization," [link], accessed [date]. [2] Financial Times, "De-globalization and Its Impact on Hedge Funds and Private Equity," [link], accessed [date]. [3] The Wall Street Journal, "Regional Investment Strategies in a De-globalizing World," [link], accessed [date]. [4] Reuters, "U.S. Trade Policy and Its Influence on Investment Strategies," [link], accessed [date]. [5] Bloomberg, "Economic Impacts of De-globalization on Investment Portfolios," [link], accessed [date].
Institutional investors in the United States are planning to adopt aggressive risk strategies by 2025, focusing on sectors such as infrastructure, aerospace & defense, industrials, and cybersecurity, in response to the US's trade policy reshaping that accelerates deglobalization.
Alternative investments are adapting to deglobalization by implementing 'deglobalization scoring,' selecting companies with strong domestic revenue bases and healthy balance sheets to mitigate global supply risks.
