"International market fragmentation can only lead to rising costs, reduced market liquidity, and ultimately, a diminished and destabilized financial system," he said.
Fund managers noted that geopolitics and the fragmentation of the world will have an impact on markets and, by extension, institutional investment strategies.
Jenny Johnson, president and chief executive officer of Franklin Templeton, highlighted five major forces that will impact the global economy: demographics, deglobalization, deleveraging, decarbonization and digitization.
"Deglobalization – obviously, we've got two wars going on. You've got the rhetoric between U.S. and China. And then you have the COVID learnings around supply chain resilience. Deglobalization is inflationary, and it's difficult for economies," she said during a panel discussion on the global economic outlook, also on Jan. 24.
Franklin Templeton had $1.5 trillion in assets under management as of Dec. 31.
Johnson, who is based in San Mateo, California, added that any economy that has an aging population will face challenges, and that central banks are now trying to deleverage as they address the amount of money they spent to shore up economies during COVID.
Geopolitical risk is also a factor that investors will have to consider. "Post World War II, most countries' self-interests were aligned with the U.S. and that has changed… We are active managers, so our job is to provide risk-adjusted returns in investments. And (when) you look at these big trends I always say it's better to swim with the current," Johnson said.
"So look at what the big trends are," she continued. "If you're looking at investing in emerging markets, you look at global supply chains, and you know that China plus one story, who're going to be the beneficiaries of that? Will India be a beneficiary? What are the skills of India?" She added that Southeast Asian nations such as Indonesia, Malaysia and Thailand have also been beneficiaries of investors diversifying away from China.
Equity investors should also look at investments that have "a little bit more quality, where you have companies that have good cash flow," she added. She also noted opportunities in private credit as banks have slowed down lending.
Deglobalization as defined by the level of trade restrictions has a growing impact on investment strategies, said Min-Lan Tan, Singapore-based head of the chief investment office for Asia-Pacific at UBS Global Wealth Management.
"It continues to rise on a year-to-year basis. In fact, the level of restrictions in place on trade goods and services is now about six times higher than just 10 years ago. So regionalization is going to be the future ahead. And this has profound implications really, for South Asia, for Southeast Asia," said Tan at a CIO insights panel discussion on Jan. 25.
Geopolitical and election risk are also a consideration as 50% of the world's population will go to the polls this year, said Hong Kong-based Janet Perumal, senior managing director, head of Asia-Pacific and head of investments for Asia-Pacific at Wellington Management, during the same panel discussion. Wellington managed more than $1 trillion on behalf of clients as of June 30.
The upcoming elections are a potential headwind, agreed Tokyo-based Hiroyuki Horii, senior managing executive officer and chief sustainability and strategy officer at Sumitomo Mitsui Trust Asset Management.
Elections can reverse trends and change everything, and since things are going well in Japan now, the results of the U.S. election could potentially have a negative effect on Japanese markets, he said in Japanese at the panel discussion.
Sumitomo Mitsui Trust Asset Management had $617 billion in assets under management as of Dec. 31.
