Olivier de Berranger

A New Order

What if you couldn’t go back? Amid the multi-pronged crises that have shown us our own dependencies and strategic vulnerabilities, the global economy is putting itself back together. Between Russian energy, Chinese medications and Taiwanese electronic chips, globalisation had made us all dependent. One reason? The extreme concentration of production sites is affecting strategic sectors and expertise the world over. Today, 75% of active pharmaceuticals sold in Europe, and 80% in the US, come from China and India, compared with 20% thirty years ago. And 80% of semiconductors and 90% of solar panel components are produced in Asia. The list goes on.

The double-whammy of Covid and the war in Ukraine snarled global supply chains and reshuffled the globalisation deck. So companies are rethinking their production and supply chains, strategic sectors are relocating all over the world, and friendlier local ecosystems are emerging. Economies are moving into new dimensions in pursuit of resilience, autonomy and sovereignty. The solution is relocating strategic assets and expertise.

This new order is reorganising the flows of goods and services between regions to reduce dependencies in key sectors – technology, manufacturing, energy, food, and health care – and abandon the fragmentation of production processes scattered over many continents and the cascading shortages caused by tensions along the supply chains through which 80% of global trade moves. Big business is adopting the “China+1” strategy, doubling the number of supply chains.

The movement is supported by government plans aimed at reducing dependence on Asia in particular. Take the semiconductor industry, with the Chips Act in the United States (more than $50 billion) and the European Union’s plan announced in 2022 (€45 billion). The need for autonomy comes with a crucial need for sovereignty.

Digitalisation and automation are boosting these industrial, economic and geopolitical transformations, which are in turn opening up new horizons, clearing fields for innovation and tapping into wells of opportunities. Who are the winners? Companies with a strong local presence that already use resilient strategies, own key assets like gas pipelines and telecoms towers, have strategic patents, locate their production or sourcing close to the end user, and receive public funding. Some good examples are Meyer Burger[1], which is developing solar panels in Switzerland and Germany; world leader Imerys, which is launching a project in France to mine lithium, a key material in the energy transition; and Euroapi, whose European production sites are freeing us from our dependence on Asian active pharmaceutical manufacturers.

 

This month’s Editorial by Olivier de Berranger, Deputy Chief Executive Officer and CIO, and Nina Lagron, CFA, Fund Manager, La Financière de l’Echiquier (LFDE)

 

Disclaimers: The opinions expressed in this document are the authors’ own. LFDE shall not be held liable for these opinions in any way.
[1] Stocks referred to are given by way of example. Neither their presence in the portfolios nor their performance are guaranteed.
[2] The funds mentioned are primarily exposed to capital risk, equity risk, currency risk, and discretionary management risk. For more information on its features, risks and costs, please read the regulatory documents available at www.lfde.com.