Economics and markets

What slowing global trade growth means for asset prices

October 10, 2021

Such a trend raises a natural question: Is globalization dead?

The allure of global trade is understandable

1The average annual S&P 500 Index price return from 1990 to 2018 was 7.4%. Three factors make up this return: valuation expansion/contraction (dollar paid per dollar of earnings), earnings growth from revenue growth, and earnings growth from ratio of earnings to revenue (profit margins). Contributions from these factors were 0.8%, 3.7%, and 2.9%, respectively.

Past performance is no guarantee of future returns. The performance of an index is not an exact representation of any particular investment, as you cannot invest directly in an index.

A slowbalization scenario is the most likely outcome
The illustration plots global trade growth starting in 1992, including a sharp contraction at the time of the 2008 global financial crisis, and continuing with Vanguard’s projections into the 2030s under three scenarios. We believe that Scenario 2, a “slowbalization” scenario in which trade grows at a pace between that of a pre-global financial crisis globalization wave and that of a post-global financial crisis trade reversal, is the most likely outcome. Only the post-crisis scenario results in a contraction in global trade growth in the coming decade.

Risks to investors may not be as great as they seem

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