Schroders - The 3D Reset Explained

The world's disruptive return to the old normal

“The 3D Reset” refers to the three “Ds” of decarbonisation, demographics and deglobalisation. We believe these ongoing trends have had and will continue to have massive long-term implications for the global economy. Taken together, the 3Ds are reshaping the investment landscape. Understanding the three Ds - how they affect the global economy, what that means for market volatility, and how active investors should be allocating their assets - might be the key to deciphering what comes next and where the opportunities are.

Decarbonisation

The response to climate change will accelerate, with a focus on the energy transition.

As countries around the world accelerate their response to climate change, we are in the midst of a transition from an overwhelming reliance on fossil fuels to greener energy sources. This energy transition will be expensive and drive inflationary tendencies, particularly given the amount of investment needed to bring innovation to scale.

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Demographics

Changing demographics and fewer workers will keep the labor supply tight, and super-charge productivity-boosting technology.

Changing demographics - specifically a predicted slowing of global population growth - will have a huge impact on inflation and economic growth as employers face pressure to compete for a tighter talent pool and maximise the efficiency of its existing workforce. Companies will also look to invest in productivity-boosting technology to protect profit margins, likely hastening the more widespread adoption of robotics and artificial intelligence.

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Deglobalisation

As businesses seek more resilient supply chains, they’ll bring their manufacturing and transportation infrastructure closer to home markets.

The Covid-19 pandemic and rising geopolitical tensions have heralded a new era where greater supply chain resilience and security is a priority. These winds have and may continue to encourage greater nearshoring of key sectors, such as manufacturing, which in turn could have implications across a wide range of sectors and asset classes.

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