New geopolitical trend you should bear in mind as an investor

The world is witnessing an increasing pursuit of strategic independence. A geopolitical trend that has been going on for some time and was accelerated by Covid-19 and the Russian invasion of Ukraine. Both demonstrated the vulnerability of worldwide value chains and provided the incentive towards greater self-reliance. As an investor, you would do well to anticipate the implications of re-globalisation for your portfolio.    

We live in a chaotic world, but history teaches us that difficult times always produce innovative solutions. As an investor, it’s important to anticipate and to look for opportunities.

Jeroen Van Boeckel, Strategist KBC Asset Management


Towards a new world economy?

‘The pursuit of strategic independence contrasts with the wave of globalisation we have seen since the 1980s, which brought increasing prosperity worldwide,‘ says Dirk Sebrechts, portfolio manager at KBC Asset Management. The fact that people, goods and services could travel freely and without hassle around the world made international trade flourish.

In that sense, globalisation was a good thing, but it does make us less resilient to disaster. Covid-19 made that very clear. Long and complex supply chains proved vulnerable when factories suddenly shut down and borders closed. The Russian invasion of Ukraine showed the Western dependence on Russian gas, as well as Ukraine's worldwide importance as an agricultural exporter.

‘A turn towards strategic independence is presenting itself,‘ according to Sebrechts. 



Three drivers for strategic independence

1. Changing balance of power

‘Several factors drive superpowers towards strategic independence, and they are all interrelated. Each factor affects the other. The increased influence of emerging economies, mainly of China, challenging the dominance of Western countries is one of them,‘ says Jeroen Van Boeckel, strategist at KBC Asset Management. The traditional balance of power is changing rapidly, leading to a clash between values and interests on the one hand, and competition for influence, resources and markets on the other. ‘Since 1 January, the club of BRIC countries (ed. Brazil, Russia, India and China) has been officially expanded by six countries (ed. Argentina, Saudi Arabia, the United Arab Emirates, Iran, Egypt and Ethiopia) with the aim of creating a greater counterbalance to the West,‘ states Van Boeckel. ‘Several of these countries have significant raw material stocks. Think of oil and gas or metals such as lithium. The new balance of power is hindering the supply of raw materials to Western industry.‘ 


The geopolitical booster for strategic independence relies on trade as a means of power. Feel free to call it a strategic retreat behind ones own borders.

Dirk Sebrechts, Portfolio Manager KBC Asset Management


2. Geopolitical complexity and uncertainty

‘We have witnessed a series of shocks and crises. This was demonstrated not only by Covid-19 or the Russian invasion, but also by the trade war between the US and China, countless cyber attacks, climate change, regional conflicts, migration flows, etc. They expose the vulnerability and interdependence of the worldwide system, and increase the demand for security and resilience,‘ states Van Boeckel.

Countries and companies are becoming more cautious about sharing knowledge and providing access to vital infrastructure. ‘Think of the US blockade preventing ASML from supplying its most advanced chip machine to China or the ban on Huawei collaborating on the 5G network in Western countries,‘ says Sebrechts.

‘A trade war between the US and China has been waging for some time,‘ Van Boeckel adds. ‘But political tensions between the two nations are also growing. Especially with the discussion around Taiwan. European diplomacy is trying to remain on the sidelines but is increasingly being forced to choose a side.‘ 



3. Toxic polarisation 

Recent years have seen a rise in nationalism, populism, extremism and protectionism, both within and between countries. This is eroding trust and cooperation between the major players on the world stage and fuelling the pursuit of sovereignty and identity.

Our society is more diverse than ever. Differences between people of different backgrounds, religions or cultures, or differences of opinion, for example, about climate impact, put pressure on a society. ‘Clashing opinions should be allowed to coexist in a healthy democracy, but when people with different opinions start seeing people as hated opponents, toxic polarisation arises,‘ according to Sebrechts.

‘With hyper-globalisation, there are losers, as well as winners,‘ says Van Boeckel. ‘Think of workers from richer countries, who saw their factories and therefore their jobs relocated to low-wage countries. When too little attention is paid to this, you get counter-movements, such as former President Trump's trade policy, to bring jobs back to the US. The Brexit is another example. Mass immigration proved to be one of the main factors in the Brexit decision, along with the billions of funds flowing to Brussels and the rules that were enforced in return. The majority's conclusion was that the UK would be better off outside the EU.‘ 


Strategic independence does not necessarily mean that the different power blocs should become entirely self-sufficient. It comes down to finding new balances.

Jeroen Van Boeckel, Strategist KBC Asset Management

Reinventing yourself presents opportunities

‘People often assume the worst, but history has taught us that difficult times always produce innovative solutions,‘ says Van Boeckel. To meet the challenges of the new, multipolar world, countries and industries will partly reinvent themselves. ‘Strategic independence does not necessarily mean that the different power blocs should become entirely self-sufficient,‘ according to Van Boeckel. ‘It comes down to finding new balances. No longer relying blindly on one bottleneck in the production chain, or on one authoritarian, unpredictable regime.‘ 


Strategic independence requires innovation and diversification, which in turn increase the productivity, efficiency and competitiveness of the world economy.

Dirk Sebrechts, Portfolio Manager KBC Asset Management


  • Technological advances support reshoring

Tomorrow's trade relationships will be different from today's. ‘If we want to shorten a number of logistics chains while reducing our dependence on some regimes, part of production will have to be relocated back to Europe,‘ says Van Boeckel. ‘This is referred to as reshoring.‘ ‘Or at least bring production closer to markets,‘ Sebrechts adds. ‘That is nearshoring.‘ Friend-shoring is also becoming increasingly more popular, with friendly nations profiting from the outsourcing of production.

‘One of the main drivers behind globalisation was the pursuit of cost efficiency and therefore offshoring production to low-wage countries. The increasing digitalisation and automation means that labour costs will play less of a role in total production costs,‘ adds Van Boeckel.


  •  Commitment to Research & Development 

Innovation determines economic progress. The quest for energy independence, for example, has led to new developments in renewable energy sources. Creating more data independence has led to revelations in cloud computing and artificial intelligence. ‘Research shows that an innovative country or company stands out better, competes more effectively and makes better use of new market opportunities,‘ says Sebrechts.

‘All this brings us to the need for new profiles in the labour market,‘ according to Van Boeckel. ‘Specific skills and qualifications are necessary in this new economy. Human capital remains important. Just like lifelong learning.‘ 


A thematic investment approach pays off in a new world view

Thematic investing is all about anticipating developments prompted by major macroeconomic or structural trends. ‘What sets us apart is our approach,‘ Van Boeckel and Sebrechts agree, ‘where strategists, economists and analysts pool their knowledge and expertise to come to a strong vision that we then tune our investment decisions to.‘  

We have a decided preference for the following three investment themes in this regard: 

  • Energy transition and independence, including materials transition and independence 

The shift from fossil fuels to renewable energy sources, as well as the development of energy storage and distribution systems, presents opportunities for investors. Since a successful energy transition is partly determined by the availability of scarce raw materials from a small number of countries – for example, lithium – alternative raw materials and production processes are also central to this theme. 


  • Use and security of data 

Investors interested in digital transformation, innovation and cybersecurity will find what suits them here. Think of data generation, processing and protection, as well as the application of data analytics and artificial intelligence. 


  • Production efficiency  

Besides ensuring ones own supply of raw materials and materials, innovations in robotics and process automation are crucial to boost ones own productivity. More and more work, across all sectors, will be carried out with advanced robots, with the aim of increasing profitability and therefore economic growth.   

By focusing on the right themes, the new geopolitical trend towards strategic independence also presents opportunities for investors.

Jeroen Van Boeckel, Strategist KBC Asset Management

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The information contained in this publication is for information purposes only and should not be considered as investment advice.