The Inflationary Impact Of Reshoring

Oct. 19, 2022 11:47 AM ET4 Comments
Richard Durant
8.93K Followers

Summary

  • Reshoring is currently a hot topic, but this could quickly change with supply chains normalizing and a recession potentially on the horizon.
  • Reshoring could shift the balance of power from capital to labor, pressuring profit margins and increasing wages, which would generally be negative for stocks.
  • Globalization does not appear to have been a large driver of deflation and hence deglobalization may not be a large driver of inflation.

Inflation Concept

Ibrahim Akcengiz

Reshoring / nearshoring to improve the resiliency of supply chains has been proposed as a source of structural inflation going forward. While reshoring is currently a hot topic, a normalization of supply chains could make it a short-lived phenomenon. Even if reshoring

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8.93K Followers
Richard Durant is the leader of Narweena, an asset manager focused on finding market dislocations that are the result of a poor understanding of a businesses long-term prospects. Narweena believes that excess risk adjusted returns can be achieved by identifying businesses with secular growth opportunities in markets with barriers to entry. Narweena’s research process is focused on company and industry fundamentals with the goal of uncovering unique insights. Narweena has a high risk appetite and a long-term horizon, in pursuit of stocks that are deeply undervalued. Coverage tilts towards smaller cap stocks and markets where competitive advantages are not obvious.Investments are driven by a belief that an aging population with low population growth and stagnating productivity growth will create a different opportunity set to what has worked in the past. Many industries are likely to face stagnation or secular decline, which counter-intuitively may improve business performance if competition decreases. Conversely, other businesses are likely to face rising costs and diseconomies of scale. In addition, economies are becoming increasingly dominated by asset light businesses, and the need for infrastructure investments is declining over time. As a result, a large pool of capital is chasing a limited set of investment opportunities, which is driving up asset prices and compressing risk premia over time.Durant has undergraduate degrees in engineering and finance from the University of Adelaide (Honors) and an MBA from Nanyang Technological University (Dean’s Honors List). He has also passed the CFA exams.

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