What COVID-19 Means for Globalisation

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The supply and demand shocks precipitated by COVID-19 will dissipate in the coming months and years, but there are reasons to believe the virus may have longer-lasting impacts, notably on the rate and direction of globalisation. The discussion about the direction of globalisation is far from new, but we believe that COVID-19 is triggering a rise in protectionist behaviour by governments around the world, making the debate highly topical. Our view is that existing supply chains can’t be easily or rapidly changed. Nevertheless, we believe that it is important for investors to anticipate the friction and uncertainty that may arise from the tide of globalisation beginning to reverse.

In the first section of this note we identify some of the forces at work. In the second section, we look at the specific investment implications at the industry and company level. We outline how we expect an unwinding of globalisation to impact industries like manufacturing and technology, and discuss the exposures that companies may have depending on their geographic footprint and whether their products are digital or physical in nature. We conclude by summarising how these trends may affect investors and what they may mean for some of the issues central to sustainability.

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In many countries, government intervention in the economy since the start of the pandemic has been unprecedented in both its speed and scale as authorities have sought to stifle virus transmission and stabilise economic activity. We expect this involvement to continue at elevated levels and the implications of spending decisions to become more apparent over time. COVID-19

has focussed political attention on issues like employment and trade—issues that were already becoming more prominent due to geopolitical developments such as the trade war between the United States and China and the United Kingdom’s decision to leave the European Union (EU).

Companies and industries have different exposures to these employment and trade issues through their supply chains, their end markets, and their tax arrangements. In the past, these arrangements were generally optimised to maximise growth and profitability for shareholders, but in a post-COVID world, they may need to be adjusted to better reflect the expectations of a company’s local stakeholders. We believe the pandemic may increase opposition to globalisation, which may in turn impact all of the underlying corporate strategies that rely upon interconnected supply chains, travel, and free trade. This is a topic of real significance to equity investors, as it may have far-reaching implications on areas such as product pricing and innovation, labour markets, and corporate tax rates.

The Drivers of DeglobalisationWe think there are several factors driving deglobalisation, some of which were already under way before this crisis struck:

• A need for incumbent politicians to apportion blame for the social and economic cost of COVID externally;

• Post-COVID imperatives for governments to support domestic employment and increase fiscal

revenues to pay for the cost of bailouts, which may result in the imposition of tariffs or restrictions that impact imports;

• Continuing tension between trading partners about trade deficits and terms of trade, as well as the undermining of global institutions and multilateral agreements between nations;

• Heightened awareness of the vulnerability of existing global supply chains as illustrated by COVID-19;

• Some management teams, especially those whose companies have received government bailouts, seeking to avoid government scrutiny and intervention by more closely aligning themselves with national interests.

We believe the combined impact of these factors is forcing companies to prioritise the agenda of local stakeholders, and many will attempt to diversify their supply chains to reduce the risk of disruption.

The Cost of BailoutsAs discussed in our last Sustainability Talks paper, “What COVID-19 Means for Corporate Strategy”, the bailout of the private sector by governments all over the world is going to have a cost. Support for companies has taken the form of grants, furlough schemes, tax deferrals, and loans and loan guarantees,

which in the case of listed companies, are traceable. We suspect that where corporate behaviour conflicts with popular opinion, companies and their shareholders will face criticism.

Just as the regulation of financial services was politicised after the bailout of the banking sector during the Global Financial Crisis, so are taxpaying voters likely to assert that they are stakeholders in the private sector because they have helped pay for its rescue. There are already signs of this: for example, the British government is drawing up plans to prevent large corporations that have used government bailout schemes from paying dividends and large cash bonuses to executives.1

With high levels of unemployment and depressed economic activity, governments may also want to reward activities that stimulate job creation and growth and challenge those that exacerbate economic problems. Governments will be a lot less interested in corporate profitability, the expectations of shareholders, or their impact on other countries than they are in the outcomes for their electorates. Companies may be starting to realise this and reacting accordingly. In some respects, bailouts can be seen as a form of “soft” nationalisation. As an example of the tension between financial

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necessity and the desire to preserve autonomy, Lufthansa’s supervisory board initially refused a €9 billion bailout package, despite being in a precarious liquidity situation, because it felt that the obligations that would come as part of the deal would be too onerous.2

Notwithstanding direct financing by central banks, the growth of deficits points to future changes in fiscal policy. The massive expansion of central bank balance sheets (Exhibit 1) is perhaps the best measure of the scale of the pressure that may soon bear down on government budgets. Once the economic contraction has stopped, it seems unavoidable that companies will be subject to higher levels of taxation over the long term. Depending on how taxes are structured and which companies they affect, attempts to levy additional taxes could inflame or ignite tensions among countries. For example, the US withdrew in June 2020 from discussions with the Organisation for Economic Co-operation and Development (OECD) countries about the imposition of a digital tax, fearing that such a tax would inhibit the American tech giants.3

Eroding Global InstitutionsMassive fiscal expansions also come at a time when many post-WWII global institutions and multilateral agreements are either being actively undermined or have been subject to criticism. Examples include the World Trade Organization

(founded in 1995 as a replacement to the General Agreement on Tariffs and Trade, which commenced in 1948), the World Health Organization (1948), NATO (1949), and most recently the European Union (1993) and the North American Free Trade Agreement (1994). The US imposition of tariffs on EU agricultural products as part of a long-running trade dispute about state subsidies to Airbus shows how established bonds between allies were already starting to fray before COVID-19.4

In other words, the pandemic has forced policymakers to prioritise their domestic economic agendas at a time when international co-ordination was already diminishing. While there’s no way of knowing exactly how massive fiscal expansions will affect foreign policy in any particular place, it seems fair to

assume that the need to spend so much to stabilise domestic economies won’t make policymakers or the general public any more amenable to maintaining or deepening globalisation. This uncertainty makes overseas capital investment decisions harder, particularly in relation to long-life assets like factories.

Reassessing Global Supply Chains In addition to the macroeconomic and geopolitical pressures on globalisation, the COVID-19 crisis increased investor focus on the viability of supply chains, especially those that touch China, where the virus first emerged. This crisis exposed the interconnected webs of commerce created by decades of globalisation. Once the outbreak became a global pandemic it created both a demand and supply shock. Although the resilience of global supply chains was not tested as much as initially expected, as sudden reduction in end demand balanced out the simultaneous shock to supply, supply chains have remained in the spotlight as second- and third-round effects of COVID-19 have become more apparent.

Companies that recognised during the crisis how reliant they have become on offshore production are likely to create shorter and/or more diverse supply chains to mitigate risk. Another factor that may drive a reassessment of supply chains will be whether companies that received government bailouts look to more closely align themselves with local national interests and policies, in an attempt to avoid future government scrutiny and intervention.

Exhibit 1

Central Bank Balance Sheets Have Expanded Sharply since the Crisis

0

5

10

15

20

BoJSNBFEDBoEECB

14.3

(% of GDP)

9.5

13.114.2

17.5

As at 31 July 2020

Source: Haver Analytics

The pandemic has forced policymakers to prioritise their domestic economic agendas at a time when international

co-ordination was already diminishing

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Although this will be a much slower-moving trend, as existing supply chains cannot be easily moved or replaced, it will likely become one of the major drivers of a more deglobalised world in the long run.

Corporate Resilience to Deglobalisation TrendsIn order to assess how companies might be impacted by rising deglobalisation, we can use a simple two-dimensional framework:

1. Are products physical or digital?

2. Are operations local or global?

These dimensions can be visualised as a matrix, as shown in Exhibit 2.

Physical vs. DigitalThis determines the ease with which a company can adjust its production process and shift profit pools globally to avoid taxation or other locally imposed restrictions. It tends to be easier to produce digital products and services anywhere and apportion profits to relatively friendly tax jurisdictions, which makes businesses with a high proportion of digital products much more resilient to government intervention and societal pressures, and therefore, less affected by a reversal of globalisation trends. However digital businesses are not immune, indeed they are often central to political concerns about technology, data, and national security, as President Trump’s recent intervention into TikTok demonstrates.

Local vs. GlobalIn a similar, but more complex manner, the extent to which a company is “local” or “global” plays into its vulnerability to deglobalisation. The complexity comes from the fact that we need to separate locus of production from nationality of producer (as illustrated in the technology example below). As we will outline, truly global companies are fairly protected. However, more domestic-oriented companies are quite exposed unless they can establish themselves as “local champions” and thus benefit from some broader national interest be it because they are a successful exporter, or further some other strategic interest.

We think it likely that the combination of a truly global business with a digital product base will be the more resilient when facing the effects of rising deglobalisation, while local businesses that sell physical goods within their jurisdictions seem more likely to be adversely affected by these trends.

Below we have applied this framework across various industries, all of which have been met by different risks and rewards during this crisis.

Global Manufacturing: Expect Increases in AutomationManufacturers and the companies that supply their equipment needs entered 2020 following a period of heightened uncertainty. Eighteen months of US-China trade tensions, triggered by President Trump’s belief that the balance of trade between the two countries was iniquitous, had left manufacturers unsure about the stability of terms of trade. In turn, suppliers of production machinery felt the uncertainty in the form of lower orders. Manufacturing in China, where labour costs are less than half that in the US, became less attractive due to the levy of additional tariffs on goods from China.

As the COVID-19 crisis grew, many observers expected manufacturers to face another challenge in the form of supply chain and production disruptions, but this has not been the case. In general, factories have been able to operate and goods have kept flowing with some temporary shutdowns here and there. Social distancing has been implemented in most factories, albeit with extra costs and an impact on productivity. A reduction in demand likely helped to balance demand with available supply at the initial peak of the crisis.

The question now is what impact these two major events might have on the global manufacturing footprint for the next decade. We believe that both will likely lead to more automation. As protectionism escalates, not just between the US and China but also other nations, governments are likely to encourage more onshoring of manufacturing—and one of the key ways to make onshoring as economically attractive as offshoring is to switch some labour to machines. This is especially true for basic component makers or assemblers already earning low margins and employing big workforces (e.g., Foxconn5). When Chinese factory workers make around $6 an hour and their US peers can make at least double that, companies

Exhibit 2

Where a Company Sits within the Matrix Affects Its Exposure to Deglobalisation Trends

Physical Digital

Local

Global

LessResilient

MoreResilient

For illustrative purposes only

Source: Lazard

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will need to automate some processes if they want to move factories home and still be profitable. The incentive to substitute machines for humans can only increase amid heightened concerns over future pandemics and the duration of social distancing. Robots can't catch COVID-19 and also don't need national minimum wage.

However, there are limitations, too—we think anyone expecting a dramatic change over the next few years will be disappointed. Factories can’t just be picked up and moved. New factories are expensive—the upfront cost to build an automotive plant could be close to $1 billion—which means it makes more economic sense to shift new capacity rather than move existing capacity. Given low rates of industry growth and long asset lives, this results in a low rate of change. Cost isn’t the only issue, either. Factories aren’t islands and are often located around supply chains with suppliers and customers set up nearby. For example, Qiatou, a town in China, makes 60% of the world’s clothing buttons and 80% of the world’s zippers. It would take a bold manufacturer

to move away from its entire supply chain. Pools of talented labour need to be recruited, and it is the limited mobility of families that often leads to industrial clusters. Finally, protectionist government policies can often have unintended consequences. For example, we are starting to see manufacturing slowly shift out of China, not to the US, but to Vietnam, where labour costs are low and tariffs have not been levied. Techtronic Industries6 (power tools) and BizLink7 (wire harnesses) have both identified increases in South East Asian production recently.

Global Technology: Digital Products May Fare Better than Physical ProductsTechnology Software“Big Tech” companies such as Amazon, Google, Microsoft, and Netflix, which sell technology as software or as a service, have been some of the clear beneficiaries of COVID-19. They were already benefitting from structural changes in consumer and corporate behaviour, and demand for digital products and

services has increased even faster during the crisis. Technology companies have largely avoided the need for government bailouts or to furlough employees and have preserved their financial independence.

COVID-19 has highlighted the dominance of some of these businesses, which could ultimately accelerate increased regulatory scrutiny. In response to this threat, we believe we see evidence that Big Tech companies are working to align themselves more closely with government policy. This is clear in two ways. First, Big Tech groups have been publicly committing more capital to enhance the safety of their employees and customers. For example, in its Q1 2020 results, Amazon announced it would commit $4 billion to enhancing safety procedures in its supply chain in response to the COVID-19 crisis.8 Second, these companies are trying to solve social problems. Alphabet has been criticised for its use of personal data, but it has also been helping governments develop track-and-trace applications to manage the transmission of COVID-19. Gaming companies, which have at times been criticised for the violent and addictive qualities of games, are now working directly with governments to help encourage people to stay indoors and game to conform with lockdown restrictions. Facebook has increased its investment in policing the social responsibility of its content. And increasingly, Big Tech is moving into public-sector areas such as education and health. Amazon bought online pharmacy

Robots can’t catch COVID-19 and also don’t need national minimum wage

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PillPak last year; Google bid for FitBit earlier this year; and Apple, Google, and Microsoft all have large positions in the software education market.

Though their services are becoming more indispensable, these companies should also expect to be the focus of future fiscal policies since many are highly profitable and have strong balance sheets. However, because their products are often digital, it can be hard for individual governments to establish a claim on the profits they generate. Even with larger deficits, governments are likely to remain in competition with each other to attract businesses that generate activity and employment. It would take real international co-ordination to close tax havens and end tax strategies like IP streaming—and as already discussed, international co-ordination appears to us to be a diminishing rather than rising trend. Thus, large, global, digital companies seem likely to elude increased fiscal responsibility for the time being.

The recent news that the UK and Europe are continuing to push for a global digital tax on technology companies, despite the US pulling out of the negotiations, will be interesting to follow. Inevitably, a lack of global co-operation will further complicate moves to tax Big Tech companies, which is why we think the earnings of these companies will be relatively

unencumbered by fiscal interventions despite the obvious negative social implications. However, the recent example of TikTok9 shows that digital businesses can still be exposed to rising global tensions, particularly as it pertains to government anxiety around technology and cybersecurity.

Technology HardwareAs an emerging superpower, both economically and militarily, China has been in strategic competition with the US for some time. Tension between the two around trade has significantly increased during the Trump presidency, with technology equipment and intellectual property becoming a key focus. US sanctions related to Huawei will likely lead to significant industry disruption given it is such a key customer to the semiconductor industry and a large supplier to the telecommunications industry. What remains to be seen is whether there will be more tariffs, wider-reaching legislation, or meaningful retaliation from China.

Companies like TSMC, Apple, and Huawei all have significant strategic importance to their “home” countries. Semiconductor manufacturing is very capital intensive—typically more than $10 billion in capital expenditures per plant. TSMC’s decision to build

out a semiconductor manufacturing plant in Arizona is unlikely to be entirely independent of the political environment and is the first large tangible move of supply chains towards localisation that we have seen.

Exhibit 3 below illustrates how widely sourced components of a smartphone have become from the globalisation of technology supply chains. Using an Apple iPhone X as an example of consumer technology, these heat maps illustrate that while the bill of materials by suppliers’ nationality is somewhat distributed around the world, the bill of materials by country of manufacture is very heavily concentrated in China and Taiwan, with Japan contributing a small amount. Whilst nominally an American product, the iPhone and the majority of its components are made in China.

Over the past several decades, globalisation has driven innovation, efficiency, and price deflation within technology hardware supply chains, which in turn has stimulated consumer demand. Any reversal of this through repatriation of industries might support domestic labour markets, but it also might be less deflationary or even inflationary, and could potentially stifle product innovation. We will continue to watch closely how policymakers and corporations react to this changing landscape.

Exhibit 3

Cost of iPhone X Production by Geography

By Suppliers ($) By Manufacturers ($)

20 40 60 80 100 120 140 160 180

For illustrative purposes only

Source: Lazard estimates

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Local Businesses: Domestic Alignment and Tax Exposures Are CriticalTo illustrate the varying exposures of “local” businesses we can assess industries such as airports, exchanges, and food retailers. These all derive economic value directly from their location and their relevance to local activity, even if some (like exchanges) might have a global customer base. Due to their differing business characteristics, their exposure to deglobalisation will differ.

AirportsThe value of an airport is derived from its geographical location, typically its proximity to major commercial and population centres. Airports tend to be local monopolies and therefore regulated to some extent. Most airports, even those that are publicly listed, are so intrinsically linked to their home countries that governments own large stakes in them, while also maintaining regulatory control (e.g., Fraport in Frankfurt and Aena in Madrid). As governments bail out airlines, airports may be asked to “share the burden” in the short term by temporarily reducing passenger and landing fees. Given that most airports are multi-decade assets, a squeeze on revenues for a few years

might not be hugely material to long-term discounted cash flows. It is very hard for these cash flows to escape local taxation.

The focus of government domestic policy appears to be on controlling the movement of intellectual property, employment, and permanent residence (migration), rather than tourism.10 Whilst deglobalisation might result in lower volumes of business passengers and cargo, leisure travellers in most cases make up a far greater share of volumes.

Stock ExchangesExchanges are another example of businesses that benefitted during this crisis. Market volatility, increased digitisation of trading (particularly in fixed income), and demand for data have been a significant tailwind for exchanges, and their growth looks set to continue after the crisis. They are high-margin businesses with few employees. Because they take minimal proprietary risk and have had no need for government support, they have not drawn the attention of governments or regulators. As such, we would expect them to preserve their competitive advantages and remain attractive investments. Whilst US-China tensions have raised the spectre of de-listing some Chinese companies from US exchanges, this would not have a material impact

on long-term earnings power of the exchanges. As exchanges start to become data and technology businesses, there is some opportunity to reduce their exposure to local taxation as well.

Food RetailersWith the rapid increase in home dining, discussed more fully in our recent paper,“COVID-19 Is Radically Shifting Consumer Behaviour”, food retailers have also been net beneficiaries of the crisis. As such, they have not taken government bailout money, and most hired aggressively. They have been well aligned with their local stakeholders. However, as highly visible businesses, with large employee bases and trapped physical assets, they are quite exposed to domestic fiscal policy changes.

To pre-empt this, most grocers have been careful to leverage their “national champion” status and have been heavily marketing both the societal services they have provided and the costs they have borne to do so. Time will tell if this tactic works, but other threats to their earnings power are around the corner. It is possible that labour practices and corporate tax rates could change, either of which could impact food retailers, with the extent of the impact depending on the labour intensity and underlying earnings power of the retailer.

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The Opposing Effects on Sustainability Will a less global, more local world be a more sustainable world? It’s a complicated question. Both globalisation and deglobalisation present challenges to issues pertinent to sustainability, but the challenges are quite different. On one hand, environmental problems such as climate change, pollution, and the loss of biodiversity require a coordinated international response. On the other hand, a more local focus on people and employment can be positive for human capital in those jurisdictions.

By way of example, the Montreal Protocol11 is considered to be one of the most effective and successful environmental treaties ever negotiated and implemented. It was signed in 1987 by all 197 United Nations member states and showcased a level of international co-operation on trade, compliance, and funding that would be difficult to repeat in a deglobalised world. It isn’t just that earlier triumphs of co-ordination are less likely going forward, however. Deglobalisation has actively reversed the

progress of the past. The US decision in June 2017 to cease participation in the 2015 Paris Accord risks undermining global efforts to address climate change.

As we noted in our Sustainability Talks paper, “Perspectives on Protecting Human Capital”, COVID-19 has shone a spotlight on the importance of protecting the health and well-being of employees. But what is out of sight is generally out of mind, and the furthest ends of international supply chains are often the hardest to audit. Reshoring is likely to increase scrutiny of how workers are treated. However, there are still some dark corners of domestic supply chains, as the recent controversy around the pay and conditions of factories supplying UK e-commerce operator Boohoo has highlighted.12

It is also important to recognise that the measures taken to address COVID-19 have intensified social inequalities, a trend sometimes linked to the rise in globalisation. Pandemics require local populations to exercise collective responsibility for public health by adhering to government guidelines,

but the impact of those guidelines has not been distributed equally. Those individuals able to switch to remote working tended to be those in higher paid “white collar” jobs, whereas jobs that require a physical presence tend to be lower paid. Furthermore, front-line medical staff and first responders have put their own health and that of their families at risk, often without any additional reward.

The fiscal response to COVID-19 is likely to be a double-edged sword for sustainability. Post-pandemic stimulus measures are likely to focus on investment in the energy transition away from fossil fuels—Green New Deals are being discussed in several countries. However, such investments will have to be paid for eventually, and this burden must be distributed sensitively if it is to avoid political repercussions. Moreover, as policymakers’ time horizons are truncated by economic and political pressure, the priority put on averting climate change or protecting the environment may diminish.

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About the AuthorsNathan CockrellManaging Director, Co-Director of Global Research and Research Analyst. Lazard Asset Management Limited (London)

Nathan Cockrell is a Managing Director and Co-Director of Research. He also serves as a Research Analyst primarily covering the global consumer discretion-ary sectors. Prior to joining Lazard in 2007, Nathan worked for Credit Suisse, where he was a Director and Research Analyst covering the European retail sector. Earlier he worked as a retail analyst for Morgan Stanley and NatWest Securities in London. Nathan began working in the investment field in 1995. He has a BA in History from Cambridge University.

William Gore-RandallSenior Vice President, Research AnalystLazard Asset Management Limited (London)

William Gore-Randall is a Research Analyst based in London. He began working in the financial services industry in 2007. Prior to joining Lazard in 2018, William was an Analyst with Abberton Capital. Prior to this, he held positions at Vitruvian Partners, Bain Capital, and The Boston Consulting Group. William holds a 1st Class M.A. (Hons) in Economics and Management from the University of Oxford.

Sustainability will likely be both a winner and loser from a rise

in deglobalisation

Implications for InvestorsCOVID-19 has focussed political attention on domestic issues such as employment and economic activity, but the urgency of domestic issues has been increasing for some time, as evidenced by protectionist policies on trade by the US and the UK’s decision to leave the EU. Public dissatisfaction with the increasingly intertwined nature of foreign and domestic policy through multilateral agreements and political unions that play a large role in determining policies related to trade, immigration, and deficit spending, has also undermined collective global institutions. The primacy of the domestic policy agenda seems likely to continue as the implications of the enormous fiscal spending decisions that have been made in response to COVID-19 become more apparent over time.

Sustainability will likely be both a winner and loser from a rise in deglobalisation—the increasing focus on local populations is likely to be supportive for human capital, but the loss of global co-ordination around issues such as climate change is of grave concern for environmental capital, unless national governments decide to make energy transition a key focus of stimulus spending. Perhaps the greatest positive for investors focussed on

sustainability has been the magnitude and scale of the policy response to COVID-19. We have now seen that governments are willing to spend big on averting a public health disaster, which could be seen as a test case for greater but slower-moving challenges ahead, such as climate change. However, should global co-operation continue to erode due to the rise of populism and the needs of the domestic political agenda, the ability to unite in the face adversity may diminish in the future.

The forces driving deglobalisation are complex, and the impact on companies will vary significantly across sectors. Broadly speaking, companies that sell digital rather than physical goods, and those that are focussed globally rather

than locally, will have an easier time adapting as globalisation unwinds. Investors should also remain alert to escalations of trade disputes between nations, especially those that identify and protect national champions and start tit-for-tat exchanges against large exporters. By identifying these risks and also considering the impact that COVID-19 had on companies’ supply chains, investors will be better equipped to assess the overall adaptability of firms to this new business environment.

For more information on Lazard Asset Management’s approach to sustainable investing, please see our Sustainable Investment Report.

ContributorsJennifer AndersonDirector, Co-Head of Sustainable Investment and ESG. Lazard Asset Management Limited (London)

Natasha L.V. CardaleVice President, Research AnalystLazard Asset Management Limited (London)

Jenny HardySenior Vice President, Research AnalystLazard Asset Management Limited (London)

Daniel RozierSenior Vice President, Research AnalystLazard Asset Management Limited (London)

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This document is provided by Lazard Asset Management LLC or its affiliates (“Lazard”) for informational purposes only. Nothing herein constitutes investment advice or a recom-mendation relating to any security, commodity, derivative, investment management service, or investment product. Investments in securities, derivatives, and commodities involve risk, will fluctuate in price, and may result in losses. Certain assets held in Lazard’s investment portfolios, in particular alternative investment portfolios, can involve high degrees of risk and volatility when compared to other assets. Similarly, certain assets held in Lazard’s investment portfolios may trade in less liquid or efficient markets, which can affect invest-ment performance. Past performance does not guarantee future results. This document is intended only for persons residing in jurisdictions where its distribution or availability is consistent with local laws and Lazard’s local regulatory authorizations. The Lazard entities that have issued this document are listed below, along with important limitations on their authorized activities. Australia: Issued by Lazard Asset Management Pacific Co., ABN 13 064 523 619, AFS License 238432, Level 39 Gateway, 1 Macquarie Place, Sydney NSW 2000, which is licensed by the Australian Securities and Investments Commission to carry on a financial services business. This document is intended for wholesale investors only. Canada: Issued by Lazard Asset Management (Canada) Inc., 30 Rockefeller Plaza, New York, NY 10112 and 130 King Street West, Suite 1800, Toronto, Ontario M5X 1E3, a registered portfolio man-ager providing services to non-individual permitted clients. Dubai: Issued and approved by Lazard Gulf Limited, Gate Village 1, Level 2, Dubai International Financial Centre, PO Box 506644, Dubai, United Arab Emirates. Registered in Dubai. International Financial Centre 0467. Authorised and regulated by the Dubai Financial Services Authority to deal with Professional Clients only. EU Member States: Issued by Lazard Asset Management (Deutschland) GmbH, Neue Mainzer Strasse 75, D-60311 Frankfurt am Main. Hong Kong: Issued by Lazard Asset Management (Hong Kong) Limited (AQZ743), One Harbour View Street, Central, Hong Kong. Lazard Asset Management (Hong Kong) Limited is a corporation licensed by the Hong Kong Securities and Futures Commission to conduct Type 1 (dealing in securities) and Type 4 (advising on securities) regulated activities only on behalf of “pro-fessional investors” as defined under the Hong Kong Securities and Futures Ordinance (Cap. 571 of the Laws of Hong Kong) and its subsidiary legislation. Korea: Issued by Lazard Korea Asset Management Co. Ltd., 10F Seoul Finance Center, 136 Sejong-daero, Jung-gu, Seoul, 100-768. People’s Republic of China: Issued by Lazard Asset Management. Lazard Asset Management does not carry out business in the P.R.C. and is not a licensed investment adviser with the China Securities Regulatory Commission or the China Banking Regulatory Commission. This document is for reference only and for intended recipients only. The information in this document does not constitute any specific investment advice on China capital markets or an offer of securities or investment, tax, legal or other advice or recommendation or, an offer to sell or an invitation to apply for any product or service of Lazard Asset Management. Singapore: Issued by Lazard Asset Management (Singapore) Pte. Ltd., 1 Raffles Place, #25-01 One Raffles Place Tower 1, Singapore 048616. Company Registration Number 201135005W, which provides services only to “institutional investors” or “accredited investors” as defined under the Securities and Futures Act, Chapter 289 of Singapore. Switzerland: Issued by Lazard Asset Management Schweiz AG, Usteristrasse 9, CH-8001 Zurich. United Kingdom: Issued or approved by Lazard Asset Management Ltd., 50 Stratton Street, London W1J 8LL. Registered in England Number 525667. Authorised and regulated by the Financial Conduct Authority (FCA), providing services only to persons classified as eligible counterparties or professional clients under the rules of the FCA. United States: Issued by Lazard Asset Management LLC, 30 Rockefeller Plaza, New York, NY 10112.

Notes1 See Financial Times, 19 May 2020, “UK Bailout scheme companies barred from paying bonuses and dividends” www.ft.com/content/f5eb2d30-db85-4911-9d4e-6af3e14bfab8

2 See Financial Times, 27 May 2020, “Lufthansa board refuses to approve bailout due to Brussels-demands” www.ft.com/content/cadfcc82-f58c-492a-a881-f9df624de1a7

3 See Financial Times, 17 June 2020, “US upends global digital tax plans after pulling out of talks with Europe” www.ft.com/content/1ac26225-c5dc-48fa-84bd-b61e1f4a3d94

4 See New York Times, 2 October 2019, "U.S. to Tax European Aircraft, Agriculture and Other Goods" www.nytimes.com/2019/10/02/us/politics/airbus-tariffs-wto.html

5 According to Foxconn’s Social and Environmental Responsibility Report, it had 863,000 employees as at 31 December 2018 ser.foxconn.com/javascript/pdfjs/web/viewer.html?file=/upload/CserReports/5b75b277-d290-45f4-a9e1-efe87475543b. FactSet reports that in the preceding calendar year it reported EBIT of TWD8.612bn on sales of TWD142.057bn, equating to an EBIT margin of 6.1%.

6 Techtronic Industries is building a $650m equipment manufacturing plant in Ho Chi Minh City, Vietnam www.vir.com.vn/tti-to-invest-650-million-in-cordless-power-equipment-plant-72856

7 BizLink has relocated 40 percent of its docking station capacity in China to Taiwan and more than 20 percent of dongle capacity in China to Malaysia. www.taipeitimes.com/News/biz/archives/2019/12/09/2003727211

8 Extract from Q1 earnings release s2.q4cdn.com/299287126/files/doc_financials/2020/Q1/AMZN-Q1-2020-Earnings-Release.pdf Under normal circumstances, in this coming Q2, we’d expect to make some $4 billion or more in operating profit. But these aren’t normal circumstances. Instead, we expect to spend the entirety of that $4 billion, and perhaps a bit more, on COVID-related expenses getting products to customers and keeping employees safe.”

9 See Financial Times, 2 August 2020, “ByteDance races to salvage TikTok deal after Trump vows ban” www.ft.com/content/40368c06-d824-4188-ae1d-ac3d58ea3221

10 The exception to this might be China where group travel to countries like South Korea and Japan does seem to be politically influenced.

11 The Montreal Protocol on Substances that Deplete the Ozone Layer was signed in 1987 with the objective of banning CFCs, HCFCs and halogens to address the hole in the ozone layer.

12 See Financial Times, 27 July 2020, “Why did so many ESG funds back Boohoo?” www.ft.com/content/ead7daea-0457-4a0d-9175-93452f0878ec

Important InformationPublished on 16 September 2020.

The views and opinions expressed are as at the date of publication and are subject to change.

Certain information contained herein constitutes “forward-looking statements” which can be identified by the use of forward-looking terminology such as “may,” “will,” “should,” “expect,” “anticipate,” “target,” “intent,” “continue,” or “believe,” or the negatives thereof or other variations thereon or comparable terminology. Due to various risks and uncertainties, actual events may differ materially from those reflected or contemplated in such forward-looking statements.

This content represents the views of the author(s), and its conclusions may vary from those held elsewhere within Lazard Asset Management. Lazard is committed to giving our investment professionals the autonomy to develop their own investment views, which are informed by a robust exchange of ideas throughout the firm.

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