Technology: One World, Two Systems

In this issue of Trends Reinforced, Chetan Sehgal explains why the global pandemic and US-China rivalry has driven demand for greater resilience and security of supply chains.

Chetan Sehgal, CFA

Profile name

SUPPLY CHAINS UNDER STRESS

In recent years, international supply chains have come under mounting pressure. Even before COVID-19, a growing number of companies and countries were already looking to diversify away from a perceived excess dependence on China, borne from rising Chinese labor costs paired with escalating trade tensions with the United States.

As Sino-US rivalry has extended from trade to technology, we’re seeing the development of “one world, two systems” in which geopolitical considerations play an increasingly dominant role in driving technology and trade patterns. This is already evident when it comes to the online giants—US companies regarded as household names such as Google, Amazon and Facebook do not have much, if any, presence in China’s online ecosystem.

The global pandemic has driven demand for greater resilience and security of supply chains, further reinforcing this structural shift. Global supply chains are starting to fracture, which poses challenges but also opportunities for those companies able to effectively navigate this changing environment.

Download the PDF to continue reading the article.

WHAT ARE THE RISKS?

All investments involve risks, including possible loss of principal. Stock prices fluctuate, sometimes rapidly and dramatically, due to factors affecting individual companies, particular industries or sectors, or general market conditions. Special risks are associated with foreign investing, including currency fluctuations, economic instability and political developments; investments in emerging markets involve heightened risks related to the same factors. To the extent a strategy focuses on particular countries, regions, industries, sectors or types of investment from time to time, it may be subject to greater risks of adverse developments in such areas of focus than a strategy that invests in a wider variety of countries, regions, industries, sectors or investments. The technology industry can be significantly affected by obsolescence of existing technology, short product cycles, falling prices and profits, competition from new market entrants as well as general economic conditions. Smaller and newer companies can be particularly sensitive to changing economic conditions. Their growth prospects are less certain than those of larger, more established companies, and they can be volatile.

The companies and case studies shown herein are used solely for illustrative purposes; any investment may or may not be currently held by any portfolio advised by Franklin Templeton. The opinions are intended solely to provide insight into how securities are analyzed. The information provided is not a recommendation or individual investment advice for any particular security, strategy, or investment product and is not an indication of the trading intent of any Franklin Templeton managed portfolio. Factual statements are taken from sources considered reliable, but have not been independently verified for completeness or accuracy. These opinions may not be relied upon as investment advice or as an offer for any particular security. Past performance does not guarantee future results.