Regional trade patterns will determine fortunes of EMs

In the short term, the rise of regionalism will benefit companies which operate across Asian emerging markets and alter merger and acquisition preferences toward regional dominance over global expansion, according to Martin Currie.

Speaking at a Franklin Templeton investment forum, Martin Currie global emerging market portfolio manager, Alastair Reynolds, said regional trade patterns would prove more influential than globalisation in determining the fortunes of emerging market companies, especially in Asia, Europe, Africa and the Americas.

“Regionalisation could be motivated by serving regional preferences in financial services, infrastructure or consumer goods, or its motivations could be more political, such as in guaranteeing supplies of key commodities or inter-operability of technology and communications,” he said.

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“A move from global ‘just-in-time’ supply chains towards more localised ‘just-in-case’ supply chains will necessitate a new wave of investment in fixed assets, which should be positive for capital goods companies, building materials and industrial real estate. There will also be a one-off step-up in demand as this new supply chain is stocked with inventory.

“However, the increase in activity required to create and stock a more localised supply chain will bring increased costs. Ultimately, someone must bear this cost, and this will present a new test to pricing power throughout industry supply chains.”

Sonal Desai, Franklin Templeton fixed income chief investment officer, said: “Rising protectionism, together with the pandemic, is driving changes in global supply chains and global trade. In the short term, these increase the risk of disruptions and related inflationary pressures.

“In the longer run, they will highlight the importance of well-developed local and regional supply chains, which could become a critical competitive advantage for countries and companies.”

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