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Tariffs Just One Piece of ‘Slowbalization,’ Morgan Stanley Says

But tariffs aren’t the only obstacle.

Tariffs Just One Piece of ‘Slowbalization,’ Morgan Stanley Says
A Slow No Wake sign is placed in Atlanta’s reservoir Lake Lanier in Dawsonville, Georgia, U.S.. Photographer: Chris Rank/Bloomberg News  

(Bloomberg) -- Tariffs are probably the most visible contributor to dragging globalization, or “slowbalization,” to borrow a Dutch academic’s term, according to Morgan Stanley.

But tariffs aren’t the only obstacle, analysts led by Michael Zezas and Meredith Pickett wrote in a note foreseeing multiple higher barriers to trade and value chain shifts.

Other geopolitical developments triggering change include Brexit, challenges to multilateral trade pacts, and U.S. government moves in addition to tariffs, like restricting Huawei Technologies Co. and expanding the authority of the Committee on Foreign Investment in the United States, known as Cfius, they said. Several “pre-existing trends” -- like the lessening importance of lower wages in supply chain location decisions and trade in services growing faster than trade in goods -- are also slowing globalization.

Investors should pay attention, as these trends “have ramifications for cost structures and market growth potential across many sectors in corporate America, China, and Europe,” the analysts said.

Morgan Stanley divides equity sectors into two groups: Those facing headwinds, which they call “slowbalizers,” and those with upside, named “emerging regional champions."

Slowbalizers include telecom, auto, semiconductor, capital goods, IT hardware, Asian tech and large U.S. internet companies. Those firms are “sensitive to the economic or national security interests of their home country” and use globally-diffuse supply chains, which means they may be in store for expensive retrenchment and compliance efforts. For example, in a worst case scenario, IT hardware companies Apple Inc., Seagate Technology Plc and HP Inc. may be hit hard while CDW Corp., Pure Storage Inc. and Fitbit Inc. probably won’t be affected.

Emerging regional champions include payments, China internet, and small and midcap U.S. internet companies. Firms in this group “work with technologies and products that are sensitive to the economic and/or national security interest of their home country,” but don’t rely on access to foreign markets of a geopolitical rival. For example, China isn’t a major part of the investment theses for payments companies Mastercard Inc., Visa Inc. and PayPal Holdings Inc.

One firm that may be set to gain is on Goldman Sachs’s radar: Citigroup Inc. In an earlier upgrade, Goldman said Citigroup is well positioned for potential supply chain shifts in Asia, given its “global footprint and on-shore presence in Asia.” Citigroup shares gained as much as 2.4% in early Thursday trading.

To contact the reporter on this story: Felice Maranz in New York at fmaranz@bloomberg.net

To contact the editors responsible for this story: Catherine Larkin at clarkin4@bloomberg.net, Jennifer Bissell-Linsk, Steven Fromm

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