Aswath Damodaran: Globalization Backlash

In his recent article, NYU professor Aswath Damodaran shares his thoughts on how politics, globalization, and disruption has changed the investing landscape.

Here are the key takeaways:

• Globalization, which dominated economics for decades, has peaked and is facing pushback. The 2008 financial crisis exposed failures of the expert class, leading to a loss of trust and the rise of anti-globalization sentiment.

• Disruption, initially driven by tech startups, is now extending into politics and government. Countries like El Salvador and Argentina have seen disruptive leaders challenge norms, and similar trends are emerging in the US with figures like Elon Musk.

• Market impacts include changes in interest rates and equity risk premiums. The 10-year US treasury rate has declined, while the equity risk premium has increased, indicating growing uncertainty about tariffs and the economy.

• Company valuations will be affected differently based on their exposure to foreign markets, supply chains, and government spending. Technology companies are most exposed to foreign revenue risks, while utilities are least exposed.

• Political connections and government involvement are becoming increasingly important factors in company valuations, particularly in the US. This shift requires investors to consider political and macroeconomic factors more heavily when assessing companies.