The Next Globalization Backlash

Globally, with national reserves growing, countries move spare cash into sovereign wealth funds. Oil-rich countries, such as Russia and Nigeria, have experienced high growth rates, and it is unlikely that hydrocarbon prices will fall anytime soon. A global trade imbalance also spurs the funds’ growth. East Asian countries, such as China and Japan, have accumulated large sums, while the US continues to post a hefty trade deficit. In the past, countries with large reserves invested in safe, but low-yield US Treasury bills and bonds. Investment managers for these countries now seek higher returns and invest more funds in companies; for example, China recently bought a $3 billion share in the Blackstone Group. Washington Post columnist Sebastian Mallaby argues that this trend, along with the shift toward “shareholder democracy” in the US, could be the world’s next globalization challenge. –YaleGlobal