Impax Asset Management, in a recent market insight, discusses how the strained ties between the US and China have ushered in a new mode for the global economy, leading to an economic decoupling. The asset manager highlights that security concerns have driven the US to impose control on the export of advanced chips to China. As a result, there is a ban on US investment in certain Chinese tech companies.
“The combination of trade barriers, tariffs, and large incentives are prompting a slow relocation of supply chains and manufacturing in strategic industries away from China,” says Impax, a delegated manager of BNP Paribas Asset Management.
However, the asset manager feels that the economic decoupling would act as a critical factor in risk mitigation and improve the resilience of the global economy. Impax stated, “The trend towards decoupling could, however, reduce supply chain risks across the global economy and is already creating investment opportunities.”
Impax points out that the global economy has long passed the moment of ‘peak globalisation’. The asset manager attributes it to the pandemic that helped everyone realise the existing long-distance manufacturing loopholes. As per Impax, governments are also playing a major role in minimising supply chain shocks by developing local sectors and supply chains.
“Fiscal stimulus for in‑focus sectors is meanwhile supporting the local growth of those industries and, by extension, boosting demand for supporting industries,” Impax elucidates.
The asset manager added that the Chinese government is pursuing self‑sufficiency and global leadership in strategically important sectors like renewable energy, industrial automation and electric vehicles (EV).
That said, Impax acknowledges that economic decoupling is a slow process. To illustrate the asset manager says, “Rather than ban Chinese imports, the US government is using fiscal incentives to encourage an increase in domestic, or at least non‑China, production.”
The asset manager also talks about the risks related to the gradual decoupling of the US and Chinese economies. “We actively track which industries and parts of the global supply chain look most at risk from geopolitical tensions, as well as those where opportunities might arise. The battery, solar, and EV markets are all among those currently in focus,” Impax found.
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