The Russian invasion of Ukraine has the potential to impede the most powerful investment trend of the last 50 years: the inexorable rise of globalization, which yielded enormous benefits for consumers (via lower prices) and shareholders (via higher profits). 

The just-in-time globalized economy was not well prepared for an exogenous shock. Some risks seem obvious in retrospect such as European energy dependence on Russia, while others do not (COVID-19, war in Ukraine). The response to these risks will be a rewiring of trade, energy, tax and currency regimes in order to make each country and its partners more resilient. But this resilience will come at a price: higher inflation, lower productivity and lower valuations.

Peak globalization is behind us

Even before the Russian invasion of Ukraine, the world hit peak globalization around two or three years ago. 

Additional impacts to global trade and investor flows:

• Trump administration’s tariffs on China and China’s reciprocal tariffs
• Increasing non-tariff barriers
• Increasing US federal debt coinciding with decreasing Chinese Treasury holdings
• Digital service taxes

Implications for equities, focusing on:

• Energy: The replacement of lower-cost Russian piped natural gas with global LNG is likely to increase the long-term price of global gas 
• Utilities and renewables: EU and national government support – and the recognition that renewables are a crucial part of the response to the Ukraine crisis - are undoubtedly a positive for developers of renewables in Europe
• Energy efficiency: The EU has made energy efficiency a central pillar to their energy strategy - targeting the buildings, industry, transport and energy supply sectors
• Food self-sufficiency and sustainable agriculture: The transition to more sustainable, secure, and affordable food availability, primarily focusing on agriculture, food processes and diets 
• Defense: Many leaders and populations worldwide are focused on increasing spending on defense 

Implications for alternatives, focusing on securing:

• Traditional and renewable energy sources: Demand for energy security has provided opportunities in both traditional and alternative energy sources
• Supply chains: Global industrial logistics 2.0: New and expanded opportunities for onshore manufacturing, distribution and domestic logistics 
• Food: Onshore and offshore transportation: Due to the war, a redistribution of trade may increase both domestic and regional transportation 
• Critical infrastructure and information technology: Opportunities include domestic production of semiconductors and cybersecurity 

Implications for Fed policy and liquidity strategies:

• Short-term fixed income strategies: Various levels of stability and return
  
• Government Money Market Funds: A look into the Fed’s Overnight Reverse Repurchase Agreement Facility (ON RRP) and overly strong technicals in the U.S. Treasury Bill market

Implications for the U.S. dollar, focusing on:

• Russia's frozen USD Reserves: Countries with ambitions counter to the "Western order" may question their reliance on USD
• The dollar's reserve status: For now, the institutional strength, convertibility, and liquidity of USD are unrivaled and contenders face significant hurdles
• FDI and currency networks: FDI could be weaponised to build trading networks entirely independent of the dollar, though it will likely be some time before they can be credibly established
• Dollar strength: Demand for USD should continue to be driven by traditional factors such as growth and rate differentials rather than perceptions of reserve status