CONTRIBUTORS
Kim Catechis
Senior Investment Strategist,
Franklin Templeton Institute
Karolina Kosinska, CIPM
Analyst
Franklin Templeton Institute
Preview
This is one of five papers from the full report—Consider This: The weaponisation of supply chains—exploring how key supply chains are evolving – and what it means for long-term investment strategy.
Industrial supply chains are being re-engineered—not just for efficiency, but for resilience, security, and strategic control. In this paper, we explore how geoeconomic pressures are accelerating the shift from globalisation to regionalisation – and what that means for sectors like automotive and defence.
From rising costs to inventory pressures to the growing role of digital logistics and circularity, companies are rethinking how and where they operate. In defence, the stakes are even higher: national security, demand certainty, and critical mineral access are reshaping industrial capacity.
The willingness of Germany and the rest of Europe to increase military spending to between 3.5% and 5% over the coming decades will lead to a rebuild of the European military industrial complex, which has been hollowed out over the past several decades. Armaments will now need to be built in Europe and therefore should boost economic growth as the industry resurges.”
Investment takeaway
The main developments for this supply chain are increased digitisation and deployment of logistics software to gather and parse real time data to better model potential risks and their possible solutions. This gathering of huge quantities of data across multiple domains, and the need to process all of it in “real time” to quickly interpret risks and potential solutions, is exactly what the next industry is fast approaching: defence.
WHAT ARE THE RISKS?
All investments involve risks, including possible loss of principal.
Equity securities are subject to price fluctuation and possible loss of principal.
International investments are subject to special risks, including currency fluctuations and social, economic and political uncertainties, which could increase volatility. These risks are magnified in emerging markets.
The government’s participation in the economy is still high and, therefore, investments in China will be subject to larger regulatory risk levels compared to many other countries. There are special risks associated with investments in China, Hong Kong and Taiwan, including less liquidity, expropriation, confiscatory taxation, international trade tensions, nationalization, and exchange control regulations and rapid inflation, all of which can negatively impact the fund. Investments in Hong Kong and Taiwan could be adversely affected by its political and economic relationship with China.
An investment in private securities (such as private equity or private credit) or vehicles which invest in them, should be viewed as illiquid and may require a long-term commitment with no certainty of return. The value of and return on such investments will vary due to, among other things, changes in market rates of interest, general economic conditions, economic conditions in particular industries, the condition of financial markets and the financial condition of the issuers of the investments. There also can be no assurance that companies will list their securities on a securities exchange, as such, the lack of an established, liquid secondary market for some investments may have an adverse effect on the market value of those investments and on an investor’s ability to dispose of them at a favorable time or price.
Investment strategies that incorporate the identification of thematic investment opportunities, and their performance, may be negatively impacted if the investment manager does not correctly identify such opportunities or if the theme develops in an unexpected manner. Focusing investments in the information technology- and/or technology-related industries carries much greater risks of adverse developments and price movements in such industries than a strategy that invests in a wider variety of industries.
Any companies and/or case studies referenced herein are used solely for illustrative purposes; any investment may or may not be currently held by any portfolio advised by Franklin Templeton. 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.
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