Book of the week: Get ready for peak globalisation
Book review: The Retreat of GlobalisationWe've reached peak globalisation, reckons Gervais Williams. From now here on in, the environment for international trade will be much less favourable.
Published by Harriman House, £16.99
Even before he enters the White House, Donald Trump is threatening American car firms with import tariffs unless they move factories back to the US. For many, this is yet another sign that we are past the point of what fund manager Gervais Williams calls "peak globalisation" and are heading into an environment that will be much less favourable for international trade.
From the mid-1970s onward, Western economies embraced globalisation as a way to improve growth and reduce inflation, says Williams. But while the expansion of trade boosted growth, companies got most of the benefits. This was because they used the fall in the price of manufactured goods to boost margins and profits. Meanwhile, lower inflation caused by cheaper imported goods enabled central banks to reduce rates, while rising household borrowing kept consumption booming. All of this was good news for the stockmarket.
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This cycle has now broken down. Stalling productivity has hit real wages, which are still below their 2007 peak. And quantitative easing in developed markets and China's debt-fuelled investment cycle, which jointly prevented the global economy from collapsing, have now reached their limits. So firms are going to see their margins squeezed, while trade wars and interest-rate rises will cut economic growth. This will hit stocks, suggesting that investors should expect a long period of poor returns.
The Retreat of Globalisation is short and to the point. Williams' focus on the importance of corporate profit margins is particularly welcome and his investment recommendations are sensible without being obvious. Both private investors and professionals should take the time to read this book.
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Matthew graduated from the University of Durham in 2004; he then gained an MSc, followed by a PhD at the London School of Economics.
He has previously written for a wide range of publications, including the Guardian and the Economist, and also helped to run a newsletter on terrorism. He has spent time at Lehman Brothers, Citigroup and the consultancy Lombard Street Research.
Matthew is the author of Superinvestors: Lessons from the greatest investors in history, published by Harriman House, which has been translated into several languages. His second book, Investing Explained: The Accessible Guide to Building an Investment Portfolio, is published by Kogan Page.
As senior writer, he writes the shares and politics & economics pages, as well as weekly Blowing It and Great Frauds in History columns He also writes a fortnightly reviews page and trading tips, as well as regular cover stories and multi-page investment focus features.
Follow Matthew on Twitter: @DrMatthewPartri
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