Spending to localize production
The pandemic and the war in Ukraine, among other geopolitical considerations, have revealed the downside of just-in-time inventory systems and global supply chains. While it will take time for localization to play out, many companies are now beginning to reshore supply chains and improve their dependability and resilience. Moreover, this trend is less about US versus non-US and more about specific companies around the globe. We think that the companies that can enable change and provide solutions during this transition will be the long-term winners here, whatever their domicile.
Conclusion
The starting point for markets today is quite different from that of ten years ago. The beta-driven environment in which investors need only pick the right style, region, country or factor is likely over. Today, rates and inflation are elevated compared to the past decade, US valuations remain expensive by historical standards and in some markets, margins are likely still too high. In our view, alpha matters in this environment, not beta. Investing in the best companies globally instead of relying on the mindset of the past decade can potentially help maximize returns while providing the benefits of diversification.
Endnotes
1 Goldman Sachs Global Equity Strategy, 2022 Outlook: Getting Real, Goldman Sachs Global Investment Research.
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