Covid-19 is still raging and in many countries getting worse, so clearly, the focus for most investors is on the ‘here and now’ and how we get through the coming months. We can’t say for certain how much longer we will have to live with these nightmarish headlines, but it will eventually come to an end. So, as part of this series, we are starting to reflect beyond the immediate horizon and on the long-term implications of this crisis.

Last time we noted that one of the major outcomes of this Covid Crisis will be low-interest rates for a long time, as governments are saddled with enormous debts that need to be serviced. This is a major aspect every investor needs to grapple with but is by far not the only significant ramification of the crisis. Indeed, arguably more momentous for investors is a shift in global geopolitics that this crisis is accelerating.

Ever since the Great Financial Crisis, we have started to trade less with one another, and this has accelerated even further over the last couple of years. There are two aspects to this development. First, we have seen the rise of populism around the globe and thus more protectionism – meaning less ‘free’ trade. Second, we have seen the United States increasingly turn inwards and become more isolationist. The US historically has been the ‘guarantor’ of the interconnected world and without it, it becomes decidedly more fragile.

As the Covid Crisis has already shown, this shift towards ‘de-globalisation’ is only going to accelerate, as we will see more populism/protectionism and an increasingly inward-looking United States, as seen by its significant efforts to begin breaking its relationship with China.

Well, a less globalised world means more trade barriers, more investment barriers, and more barriers to the movement of people.
When it comes to trade and investment, it becomes very interesting from our perspective. With barriers going up, vast global supply chains will have to come closer to ‘home’, which is going to be accelerated by Covid-19, as policymakers will see it as ‘safer’ to have supply chains closer to home.

This means we will likely see more manufacturing jobs reappearing in the West in the coming years – so it will be overall positive for Western working people. On the other hand, Western labour is very expensive compared to developing world labour and hence there will also be an increased need for automation.

And that leads us to one of the most important investment themes for the coming years – the pivot towards firms delivering automation solutions. With cheap labour pools increasingly cut off from big industry, in order to keep margins up, automation will be key. Companies involved in this process are needed in every portfolio.