When the leaders of the world's 20 most important developed and not-quite-there-yet economies gathered in Sidney Crosby's winter home this week, there was no shortage of earnest pledges to keep the stimulus taps open, restore stable growth, give the IMF wider powers and fix everything else from global imbalances to financial system regulation and investment bankers' greed.
The air was filled with the usual bromides about "common and shared objectives," to borrow British Prime Minister Gordon Brown's contribution to the overflowing dish of platitudes. When they weren't patting themselves on the back for averting the second coming of the Great Depression, politicians were issuing solemn we-must-never-let-this-happen-again warnings to all and sundry. When, that is, they weren't looking down their noses at those foolish enough to believe that too much government intervention might not actually be such a good thing.
Needless to say, everyone took pains to decry protectionism "in all its forms" as a serious threat to the global recovery. This is surely in their common interest. Yet protectionism against both imported goods and capital is on the rise, along with economic tensions generally. And these will almost certainly worsen if the economy ends up back in a tailspin. "Everybody's against it, but everybody's doing it," says Pierre Fournier, who plies his craft as a geopolitical analyst with National Bank Financial in Montreal.
Indeed, just about every member of the G20 has been erecting more barriers to keep out foreign investors.
Typically, these are justified on some sort of national security grounds, as a World Bank study released yesterday shows. The flow of foreign capital into stocks, companies, infrastructure and other investments fell 15 per cent last year from $1.9-trillion (U.S.) in 2007, largely as a result of the financial calamity. This year, in a somewhat more stable environment, it could be as much as 50 per cent lower.
"If anything, the current crisis should put a premium on attracting more of such investment, be it to shore up ailing national firms or, more generally, increase investment at a time of recession," opined Karl Sauvant, author of the report and executive director of the Vale Columbia Center on Sustainable International Investment. "To what extent they will actually use these [public policy]mechanisms only for limited purposes of protecting legitimate national objectives - or, rather, will abuse them for protectionist purposes - is a matter of watchful waiting."
Mr. Fournier is one of those watchers. He spent 17 years as National Bank Financial's research director before broadening his scope to the geopolitical realm.
When others are puzzling over the bizarre behaviour of a Moammar Gadhafi or worrying about Iran's nuclear ambitions, Mr. Fournier is busy weighing the potential risks to investors.
His conclusion: Even as the major powers play nicer on the world stage to serve their mutual interests, tensions on the economic front are getting worse. And with that comes increased dangers for offshore investors. Mr. Fournier cautions he's not predicting full-blown protectionism of the sort that flattened the world in the 1930s and would be even more destructive in today's more intertwined global economy.
The tipping point could well be a W-shaped downturn, which has become the forecast du jour of the bearish crowd.
Mr. Fournier himself is not sitting at that campfire. He agrees with the consensus pick: a long stretch of relatively slow global growth. If it holds true, the trade frictions will remain largely contained. "But if we get a double-dip recession - and that's not impossible - the protectionist pressures that you have right now in the U.S. Congress could become overwhelming."
What does the growing risk mean for investors in emerging markets? "You want to go for the ones that are catering less to the export market and go more for the ones catering to their internal markets."
So reduce exposure to the likes of a Thailand and boost holdings in places like Brazil, with its large domestic market and ample resources.
Oh, and you may also want to steer clear of those intrepid mining and oil companies that operate in high-risk areas like Ukraine, Kazakhstan, Mongolia or Congo, which fall into the widening spheres of influence of Russia or China.
In the case of Mongolia and Congo, for instance, "chances are that eventually China will indirectly grab the resources, especially if there are economic tensions [among trading partners]" Mr. Fournier says.