Flourishing and financially successful actors will thrive in the time of economic re-nationalization

Flourishing and financially successful actors will thrive in the time of economic re-nationalization

Reverse Berlin Wall Moment: Here's a glimpse into the current state of the global economy that resembles a significant shift—a "reverse Berlin Wall" moment, if you will. In the past, the breakdown of the Iron Curtain brought structural benefits to asset owners, expanding the global workforce, reducing costs, and denting inflation. But now, we're witnessing consequences that go far beyond just economics.

Let's call this an era of deglobalization, marked by a steady move away from the US-led international order. This shift has contributed to populism, economic nationalism, and, ultimately, the rise of leaders who’ve disrupted traditional norms across geopolitics, economics, and foreign policy—Donald Trump being one prime example.

In many ways, we're seeing key alliances weaken, long-standing policies challenged, and a turn towards protectionism and tariffs. The trends may change occasionally, but the underlying direction stays the same: deglobalization and economic fragmentation.

It's a complex, unsettling time, but the stock market still holds those soaring valuations, particularly in the US. So, it's crucial to maintain caution in investment strategies.

The STS Global Income & Growth Trust aims to provide good, risk-adjusted returns throughout market cycles. We focus on resilient, cash-generative businesses that are sitting on robust balance sheets and delivering stable, growing income. Here are three examples that demonstrate how profit can still be made in this unpredictable landscape.

Rising from the Red Tape:

Paychex (Nasdaq: PAYX) serves as a US leader in payroll, HR, and insurance services for small-medium businesses. With the growing complexity of regulations, businesses are increasingly turning to outsourced solutions like Paychex. Its high recurring revenues and low capital requirements make it a stable, growing long-term investment.

CME Group (Nasdaq: CME), the owner of the Chicago Mercantile Exchange, thrives on market volatility. Its control over key derivatives contracts and deep liquidity pools give it a competitive edge that’s uniquely valuable in today's uncertain world.

Amadeus IT Group (Madrid: AMS), a global travel technology leader, offers mission-critical IT services and a booking platform. This firm enjoys a dominant market position influenced by network effects and high switching costs. Its volumes-driven rather than price-sensitive business model makes it an undervalued global income investment.

Of course, that's not all there is to this story. The repercussions of deglobalization on the global economy and asset prices are vast, creating both risks and opportunities. Let's explore these impacts further:

Labor Market Fragmentation and Income Inequality:

One significant side-effect of deglobalization is a fragmented global labor market. Workers become less mobile, leading to uneven distribution and increased automation and AI. The shift exacerbates income inequality, both within and across countries.

Reshoring and Regionalization of Supply Chains:

In response to global crises like pandemics and geopolitical conflicts, companies and governments are focusing on creating resilient regional supply chains by reshoring and nearshoring. This new approach reduces global supply chain complexity but reinforces regional blocs, deepening economic fragmentation.

Rising Protectionism and Trade Barriers:

A political shift toward protectionist policies, including tariffs and stricter immigration rules, has increased significantly. This move prioritizes domestic industries and national security over globalization, influencing market dynamics.

1. In this era of deglobalization, the stock market still offers opportunities for investing, specifically in resilient and cash-generative businesses like Paychex, CME Group, and Amadeus IT Group, demonstrating how profit can be made despite the unpredictable landscape.
2. Economic fragmentation, fueled by deglobalization and rising protectionism, has led to a fragmented global labor market, causing workers to become less mobile and increasing income inequality within and across countries.
3. Companies and governments are responding to global crises by reshoring and regionalizing supply chains, focusing on creating resilient regional supply chains and reducing global supply chain complexity, reinforcing economicfragmentation.
4. Trump's administration and other populist leaders have contributed to this era of deglobalization, challenging long-standing policies and promoting economic nationalism, resulting in a steady move away from the US-led international order.
5. The financial sector is also impacted by deglobalization, as the rise of protectionist policies and tariffs affects business, finance, and technology, requiring investors to adjust their investment strategies and maintain caution.

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