Companies need to change the way they approach finding growth, according to Schroders co-head of fixed income Philippe Lespinard, who says the president-elect Donald Trump represents an end to the ‘Washington consensus’. 
“In the last 30 or 40 years the global economy has been managed by what’s called the Washington consensus,” he said.
This, he says, is the widely-held opinion that free trade, free movement of capital, balanced budgets and independent central banks are all positive for the global economy, while inflation targeting has been the right regime for developed countries to take.
“And that has worked wonderfully well if you look at the world as a whole, billions of people have been pulled out of poverty and so on; but it’s created local inequality, even though inequality globally has diminished enormously.”
Chart to show population living in poverty since 1820
Source: ourworldindata.org
In the graph above, the red line represents those living on less than $1 per day and the yellow line on less than $2 per day based on data from the World Bank’s Bourguignon & Morrison while the black represents line on those living on less than $1.90 per day based on more recent data.
As it shows, all have been falling with poverty reducing at its quickest pace from 1980 to 2015. “The point was on the whole it’s [globalisation] actually done quite well for the world,” Lespinard said.
However, this has caused problems on a local level within developed economies, with the election of Donald Trump and the Brexit vote representing a shift in mentality among people towards a more anti-establishment ideology, explains Lespinard.
He said: “At a local level people are now saying ‘that didn’t work for me – the fact that the Chinese are better off but I lost my job – that’s not good,’ and they’re now pushing back.”
“And it’s the first time that people are getting power, whether it’s in Britain or in the US or potential candidates in Europe, people are now saying we’re not sure about this.”
“I think we’ve forgotten how prosperous the world has become despite all the ins and outs and some of the failures along the way such as Greece and Argentina.”
Indeed, this was reflected in the stock market, with the MSCI AC World rising 182.25 per cent over the last 20 years, with the rise of globalisation and free trade boosting companies, particularly exporters.
Performance of index over 20yrs
Source: FE Analytics
This has largely been through the rise of the large multinational companies which have taken advantage of the growing globalisation to cheaply export across borders.
Lespinard said: “If we are going to go away from the Washington consensus - i.e. we start clamping on free trade and one day we’ll worry about free movement of capital and so on - if you have built business models on exporting your way to growth these are going to be challenged.”
“I think the one thing we look out for in our portfolios are those companies or countries whose business model is very much growth through exports and if that is your business model then I think it is worth re-examination because that could be very challenged.”
Indeed, last month, JO Hambro Capital Management senior fund manager Christopher Lees noted: “For the past 15 years it’s been about investing in the winners of globalisation, but that’s probably changing. Perhaps we’ve had peak globalisation.”
Meanwhile, Old Mutual Global Investors chief executive Richard Buxton, following the US election, said: “This is the end to the Washington consensus, to the era of 'Davos Man', to the belief that an elite knows best how to manage the global economy.”
With upcoming elections in Europe, there is the potential for support of the anti-establishment, anti-globalisation sentiment to continue, putting further pressure on institutions such as the European Union.
This would put more strain on globalisation, with many countries relying on the free trade and movement of labour that underpins the EU.
Despite this, Rory Bateman, head of European equities at Schroders, says investors should not panic, regardless of the outcomes.
“Clearly there are concerns about the political environment and the rise of populism, or the anti-establishment vote, but I think within equities there are always opportunities,” he said.
“There are always opportunities in equities and there are always companies from a bottom-up perspective that can take advantage of these structural changes.”
European equities have been one of the worst performers in 2016, with some expecting that trend to continue into next year, with an election slate including general elections in France, Germany and the Netherlands, as well as a referendum in Italy next month.
Performance of index in 2016
Source: FE Analytics
So far in 2016, Europe has lagged other markets, returning 10.24 per cent to investors, 20.56 percentage points behind the top performing MSCI Emerging Markets index.
Miton Group fund manager David Jane said: “It seems inevitable that the coming months will see the Eurozone move back into the spotlight, leading to changes in how asset classes are perceived.”
“The recent focus has been on the US elections and the implications for emerging markets, while the eurozone has been very quiet.”
Despite the concerns, David Absolon, investment director at Heartwood Investment Management, added: “We are maintaining our overweight position in European equities. This market has not been favoured by investors, but it offers a relative value opportunity versus other regions.”