Artisan Canvas

There’s been something of a trend in recent years away from trade pacts among large blocs and toward more bilateral agreements. Naturally, there are notable exceptions—the renegotiated NAFTA and the recently agreed Asia Pacific pact jump immediately to mind—but relative to the number of recently agreed bilateral treaties, the momentum seems to have swung in favor of the latter. Perhaps because bilateral agreements are easier to hammer out—a potentially significant factor in an overall tenser geopolitical environment. Whether it’s that simple or something deeper is at work is up for debate—which we’ll leave to the political scientists—but with some big political shifts among major countries in the offing (namely, the US, China, and the UK), it’s worth evaluating the potential direction of future trade deals as we head into 2021.

One of the more surprising (though not entirely unanticipated) announcements from China’s recent Fifth Plenum outlining its five-year plan for the country’s economy was that the country would no longer provide a target GDP growth rate as it has historically done. While some observers may view it as a signal the country is decreasingly able to generate the heady growth rates of years past, it’s worth considering alternate possibilities. Namely, a shift in focus from absolute growth toward quality of growth—a move with significant implications.

Supply/Demand is a semi-regular feature of the Artisan Canvas rounding up interesting and quirky subjects from across the Internet with a focus on economic and business trends. A good rule of thumb among the Artisan Canvas editorial staff is “never reason from a price change.” With that in mind, our latest edition of Supply/Demand.

As consumption habits have dramatically shifted amid the pandemic, demand for some seemingly out-of-the-ordinary goods and services has spiked. Whether these behavioral changes prove lasting, only time will tell.

A cursory glance at major global equity indices shows a pretty clear V-shaped recovery—with a total return of 1.6% in the S&P 500® Index from February 19, 2020 through October 26 and similar pictures in the Russell 2000 and the MSCI ACWI ex US Indices. So are stocks just invincible? Or considering the available economic data, nascent spikes in COVID cases in Europe, and historically poor corporate earnings, is the market too optimistic? Breaking down the broad indices provides some interesting insights for both the bull and the bear cases.

Beginning in the 1970s, Milton Friedman and his economist colleagues at the University of Chicago successfully steered private enterprises to prioritize the pursuit of profits as their sole social responsibility. While we will not venture to agree or disagree here, several forces are seemingly working together to shift this mindset. Though still in its infancy, our research and work on ESG for the past two years suggest a more balanced “stakeholder primacy” is taking hold. 

Featured Author: Jessica Lin
Jessica Lin is an analyst on the Artisan Partners Sustainable Emerging Markets Team.

E-commerce was growing markedly faster than overall retail sales before COVID-19, especially in EM. But the global response to COVID-19—drastic containment measures and cautious economic reopenings—led to a surge in online shopping fueled largely by millions of consumers shopping online for the first time. China’s Alibaba reported an increase of 28 million mobile active users in Q2, while Latin American e-commerce company MercadoLibre reported 16 million new active users during the quarter. 

While not as dramatic as during the global financial crisis, dividends in 2020 have taken a hit: Dividends globally declined some $108 billion to $382 billion in Q2—a 22% YoY drop. An estimated 27% of companies globally cut their dividends, including more than half of European companies. In the UK, 176 companies canceled dividends altogether. The story is slightly different in the US:

As governments globally seek fresh means of stemming the economic devastation wrought by COVID-19 and its attendant lockdowns, a common consideration is infrastructure spending—hardly surprising, considering governments have historically turned to infrastructure as a means of creating jobs and, ideally in turn, goosing consumption (see: Alphabet Soup, FDR). Considering it’s a public good which can often go begging when the economic outlook is rosier, infrastructure seems a natural candidate amid a period of flagging aggregate demand. And indeed, 2020 has seen its share of planned infrastructure spending globally.

The pandemic has accelerated secular trends—such as the shifts to e-commerce and digital payments, social media’s dominance of advertising spend and the rise of gaming. It’s also intensifying normal cyclical fluctuations, pulling forward home improvement projects and pressuring retailers—particularly those reliant on shopping mall locations—to declare bankruptcy. None of this is terribly surprising. More likely to catch market participants’ eyes, the combination of COVID-19 and social media is amplifying the oldest cyclical phenomenon known to mankind: greed!

Supply/Demand is a semi-regular feature of the Artisan Canvas rounding up interesting and quirky subjects from across the Internet with a focus on economic and business trends. A good rule of thumb among the Artisan Canvas editorial staff is “never reason from a price change.” With that in mind, we present Supply/Demand.

Broadly speaking, commodities prices have risen considerably since early March’s sharp downturn. Is this portending an economic recovery as demand picks up? Or are we facing down sustained supply chain disruptions?