Reconnecting global supply chains

5 min read 20 May 22

Summary: Global equities delivered the worst monthly return in April since the beginning of the pandemic, and correlated sell offs across equity and bond markets have continued into May. Investors are weighing the prospects of recession as central banks tighten the screws to tackle inflation. Inflationary pressures are driving up input prices whilst companies are still dealing with sporadic supply-side pressures. Building supply-chain resilience is firmly on the agenda of governments and companies alike. Investment Specialist, Kirsty Clark reviews recent market performance and looks at how companies are improving supply-chain resilience.  

April proved to be a challenging month for equity markets. All major regions and most global sectors lost ground in the month, although the FTSE 100 managed to secure marginal gains in local currency terms. The MSCI AC World Index ended April down 8% (total returns in US dollar terms), marking the worst monthly return for global equities since the beginning of the pandemic as tighter monetary policy, Chinese lockdowns and geopolitical uncertainty weighed on risk appetite.

Global Value outperformed Growth, defensives outperformed cyclicals, and small caps in aggregate finished ahead of their large cap counterparts – although large caps were more resilient in the UK and Europe.

US stocks were among the hardest hit, with the tech-heavy NASDAQ indices and S&P500 Index leading the markets lower, as US tech earnings disappointed and the rising rate environment weighed on the earnings outlook. Japanese equities also lagged the wider market. Emerging market equities outperformed developed market equities but Poland, Brazil and South Africa were among the poorest performers overall. Chinese A shares, frontier stocks and the FTSE 100 were some of the more resilient performers in April.

Defensive sectors outperformed, led by consumer staples. Energy stocks were also relatively resilient. Among tech names, semiconductors, software and tech hardware stocks were the laggards in the month.

Source: Refinitiv DataStream, 30 April 2022. Total Returns in USD.

In commodities, Brent crude continued to climb and is up more than 40% year-to-date. It closed the month just shy of $110/barrel. Gold was down in April but proved more resilient than both equities and bonds. The US dollar continued to strengthen against a basket of currencies in April.

In fixed income markets, government bonds continued to sell off and yields ticked higher. There were growing fears that central banks in developed markets would struggle to achieve a soft landing, with the focus firmly fixed on addressing inflation. Global investment grade and high yield bonds also sold off, with uncertainty about the pace of monetary tightening, geopolitical tensions and concerns about slowing growth in China (amid renewed lockdowns) adding to market volatility.

The pain for markets has continued into May, with correlated sell offs across equity and bond markets at the time of writing. With an increasingly challenging backdrop, and as central banks further tighten the screws, earnings resilience will be key for companies seeking to successfully navigate a number of exogenous shocks. We have started to see global leading indicators trending downwards, waning consumer confidence and signs of weakening demand, as price rises begin to bite. Meanwhile, supply-chain disruptions remain a challenge for companies, exacerbated by the war in Ukraine and localised lockdowns in China.

The global pandemic has highlighted the weaknesses in global supply chains which has prompted companies to consider building in supply-chain resilience rather than simply focusing on supply-chain efficiency.

Global demand bounced back in 2021, and trade experienced a robust recovery, but the confluence of surging demand and constrained supply – amid lingering supply-chain bottlenecks – drove up prices even before the war in Ukraine. Subsequent supply hurdles have added to the inflationary pressures and supply shortages.

Supply-chain bottlenecks leading to delays and shortages have created a logistical challenge for companies, and a security issue for dependent countries, prompting speculation of a wholesale shift to ‘reshoring’ of operations (shifting manufacturing and suppliers to home markets) to reduce friction in supply chains and a build out of local capacity. However, the evidence suggests that forecasting trade ‘deglobalisation’ may be a little premature. A recent survey by Economist Impact[1] discovered that only 5% of companies had ‘reshored’ operations and, while a larger proportion of companies have reconfigured their supply chains in order to ‘nearshore#’ or ‘regionalise’ supply, this only amounted to 12% of companies surveyed.

By far, the dominant course of action by companies (48% of those surveyed) to improve supply-chain resilience, has been to diversify suppliers for each input, regardless of location. A smaller percentage (36%) have streamlined operations, working with fewer suppliers to reduce the number of tiers within their supply-chains.

Reshoring can be an expensive undertaking and the infrastructure to support it can take time to build out. Consider the semiconductor industry, for which a pivot to full-scale self-sufficiency by region has been estimated to cost no less than $1 trillion in incremental upfront investment, and bring with it a bump up in semiconductor prices of 35%-65%[2]. Authorities in the US and the EU have proposed legislations to improve semiconductor supply-chain resilience, with $52 billion[3] and €43 billion[4] earmarked for investment respectively, but there are no quick fixes and uncertainty remains around how best to direct this funding.

The onset of widespread lockdowns and the subsequent demand boost following the global pandemic brought the fragility of global supply chains into focus, but supply chains and trading patterns continue to be impacted, not least by the war in Ukraine and localised lockdowns in China.

Source: Federal Reserve Bank of New York, Global Supply Chain Pressure Index,, April 2022. The Global Supply Chain Pressure Index (GSCPI) integrates a number of commonly used metrics with the aim of providing a comprehensive summary of potential supply chain disruptions. Inputs include global transportation costs, airfreight cost indices, and components from PMI surveys focusing on manufacturing firms across seven interconnected economies: China, the euro area, Japan, South Korea, Taiwan, the United Kingdom, and the United States.

The complexity of global supply chains introduces greater opportunity for part of the production or distribution process to fall down if one input, component or service is delayed or compromised. It can also lead to a heavy reliance on particular countries – where a resource, infrastructure or expertise is an essential input along the supply chain (for example, automakers and electronic consumer goods companies are just a few among many industries that are heavily reliant on the use of semiconductors for finished goods and technologies – for which the manufacture, infrastructure and expertise is largely centred in Asia). Globalised trade has provided efficiencies and cost benefits for many companies and consumers alike, but the scale of the (inter)dependence and the demonstrated speed at which supply-chain efficiencies can unravel, has prompted some reflection on existing global trade integration, and how best to build in greater resilience.

Given this focus on greater supply-chain resilience over cost efficiency, the nature of trade is likely to change in the coming years. However, there are steep hurdles to large scale regional self-sufficiency. A shift in alliances and a broadening of trusted partnerships may be the more likely route to supporting supply-chain resilience, certainly in the medium term, versus a wholesale reshoring of capacity and capability.

#Nearshore refers to outsourcing to countries located in close proximity with similar time zones

[1]Global survey conducted between October and December 2021 with 3,000 respondents across six regions: North America, South America, Europe, Middle East, Africa and Asia-Pacific. 15 interviews with global and regional trade experts and senior executives.




By Kirsty Clark

The value of investments will fluctuate, which will cause prices to fall as well as rise and you may not get back the original amount you invested. Past performance is not a guide to future performance.

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