Expert: Stephen Andrews, Portfolio Manager and co-Head of BlackRock's Global Emerging Markets Team Facilitator: Paul Kearney
Headlines:
- A 'world of three' is emerging, with the Western bloc led by the US and EU, the Eastern bloc led by China, and a third bloc of unaligned countries
- China's industrial policies, technological advancements, and strategies for securing resources and supply chains
- The impact of deglobalization and decoupling on various industries, including manufacturing, pharmaceuticals, and energy
- The potential conflict over Taiwan, the strained relationship between the US and China, and the economic consequences for countries caught in the middle
Discussion:
The shifting geopolitical landscape has profound implications for global trade, investment flows, and the future of capitalism.
Deglobalisation and decoupling
The phenomenon of deglobalization or decoupling is considered a significant driver of market changes. The pursuit of profit and competitive pricing has been the driving force behind globalisation, but the Russian invasion of Ukraine on February 24, 2022, marked a turning point. Security and surety of supply have become paramount concerns, leading to a shift in priorities for companies and governments.
The impact of this shift on various industries, such as manufacturing, pharmaceuticals, and energy, as companies and governments seek to diversify their supply chains and reduce reliance on China was then highlighted.
China
China's industrial policies and technological advancements, particularly in areas like renewable energy, electric vehicles (EVs), and advanced manufacturing were then discussed, with examples provided of China's state-driven efforts to dominate specific industries, such as solar panels and EVs, by pouring capital into these sectors during technological shifts.
The challenges faced by Western companies in competing with Chinese manufacturers were also highlighted, by citing the example of Xiaomi's EV factory in Beijing and the potential threat it poses to established automakers like Volkswagen and Mercedes.
Unaligned countries
The discussion then shifted to the role of unaligned countries, which account for around 45-50% of the world's population.
These countries, including India, Indonesia, Brazil, and Mexico, are becoming increasingly important as the Western and Eastern blocs compete for their human capital and natural resources. Examples of how countries like Indonesia are leveraging their resources, such as nickel, to attract foreign direct investment (FDI) and improve their balance of payments, were provided. This suggests that the competition between the two major blocs for these resources could create significant opportunities for the unaligned countries.
Taiwan
The discussion touched on the geopolitical tensions surrounding Taiwan and the potential for conflict between China and the West, with concerns expressed about China's intentions regarding Taiwan, with economic strangulation or a blockade a more likely scenario than an outright military invasion.
The implications of a potential conflict for global supply chains, particularly in the technology sector, given Taiwan's importance as a semiconductor manufacturing hub was then discussed.
The Middle East
The conversation briefly shifted to the Middle East and the ongoing Israel-Palestine conflict. Concerns were expressed about the potential involvement of Hezbollah, an Iranian-backed Shia militant group based in Lebanon, and the possibility of the conflict escalating beyond the current tensions between Israel and Hamas in Gaza which could lead to a much larger conflict with significant implications for the region.
Key takeaways:
- Closely monitor the geopolitical tensions surrounding Taiwan and the potential for economic strangulation or blockade by China
- Assess the impact of deglobalization and decoupling on various industries, particularly manufacturing, pharmaceuticals, and energy, and develop strategies to diversify supply chains and reduce reliance on China
- Evaluate investment opportunities in unaligned countries, such as India, Indonesia, Brazil, and Mexico, as they become increasingly important in the competition for resources between the Western and Eastern blocs
- Analyse the implications of China's industrial policies and technological advancements, particularly in areas like renewable energy, EVs, and advanced manufacturing, on Western companies and their ability to compete
- Monitor the developments in the Middle East, particularly the potential involvement of Hezbollah in the Israel-Palestine conflict, and assess the potential implications for the region
