The regulatory environment outside the United States is more conducive to the proliferation of disruptive business models, and, we believe, is one reason investors should consider international equities.
Financial technology (fintech) is driving long-term shifts, such as the move toward card and even person-to-person payment—and these trends are likely to underpin above-average industry growth. Indeed, much of the digital innovation of the past decade has taken place in the financial services sector.
The U.S. regulatory environment has proved a hindrance to innovation in fintech.
However, the U.S. regulatory environment has proved a hindrance to innovation in this area, with an increasing amount of fintech innovation coming from abroad.
The past two decades have seen a rise in the number of new data protection laws and privacy regulations, and organizations must often comply with more than one regulation spanning different geographies and focusing on different capabilities.
This is especially true in the United States, where there is a morass of complicated regulation. Try to imagine, for example, how difficult it would be for a conventional financial institution to dip its toes in the cryptocurrency industry.
There has been more innovation in international markets, where compliance requirements under the Bank Secrecy Act and other anti-money-laundering regulations are clearer. Europe, in particular, is doing well in financial technology as well as robotics and 5G.
The localization of supply chains is creating local champions as companies with close proximity to consumers gain share.
Moreover, “slowbalization” could create local champions, as William Blair’s Ken McAtamney has discussed in a blog post.
As Ken explained, globalization is a long-term phenomenon. The past 40 to 50 years have been an era of liberalization of economic policies. A confluence of forces on both the supply and demand sides have favored this trend. This has supported global growth and shaped the landscape for winners and losers in corporate performance.
Over the past few years, however, we have seen many of these forces challenged and in some degree reversed as the undercurrents of socioeconomic imbalances, nationalism, and populism reveal themselves in trade and tariff changes and even corporate supply chains. The Economist refers to this as slowbalization, as discussed in depth in our podcast.
It will be interesting to see if institutions worldwide rise to the challenge and work together to solve the problem, leading to a flattening of the world, or if we will see retrenchment into this trend of national interest that takes precedent over all else.
In the meantime, we have witnessed global supply-chain disruptions and the repatriation of intellectual capital and expertise. The localization of supply chains is creating local champions as companies with close proximity to consumers gain share.
Our white paper looks at the potential benefits of international investing in more detail.
Three Pillars of International Investing Series
Part 1: Three Pillars of International Investing
Part 2: Fishing in Bigger Ponds
Part 3: A Changing Tide Supports International Investing
Alaina Anderson, CFA, partner, is a portfolio manager and research analyst on William Blair’s Global Equity team.
GICS Reclassification: Impact on Emerging Market Investors
