The Markets March 31, 2025

PGIM Research Examines Deglobalization’s Portfolio Implications

Approximately 25% of global GDP, including a significant number of strategic and high-tech sectors, is deglobalizing, according to the report. 

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Geopolitical risk is top of mind for investors. According to a recent PGIM report, “A New Era of Globalization: Shifting Opportunities in a Dual-Track World,” the world has entered a new “dual track” era of globalization, in which strategically important sectors are deglobalizing, but a majority of sectors and trade patterns continue to globalize as they have for decades. 

Approximately 25% of global GDP, including a significant number of strategic and high-tech sectors, is deglobalizing, according to the report. While representing only one-quarter of global GDP, these industries feed into many other industries.

“Our list includes AI, high-end semiconductors, 5G telecom networks, critical minerals, oil and natural gas, EVs and batteries, the military sector, and certain parts of the biotech sector,” says Taimur Hyat, PGIM’s COO and one of the report’s authors.

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“This 25% of the global economy really punches above its weight,” says Shehriyar Antia, PGIM’s head of thematic research and another of the report’s authors. “Chips, critical metals [and] energy, for example, are all inputs into a wider range of industries and goods.”

Portfolio Considerations 

The report noted multiple portfolio-wide implications of the dual-track era. Among those will be national winners and losers from industries like manufacturing and mining, resulting from larger powers seeking to reshore and near-shore critical industries. Countries set to benefit are those with existing industrial capacity that can be more attractive for reshoring and near-shoring activities.

“As more sophisticated manufacturing leaves China, it has to go somewhere and one of the most natural places to go are places where there’s already some simple manufacturing,” Antia says.

For example, India is a producer of basic electronics and pharmaceuticals but could become a winner in more advanced electronics and biologicals. Costa Rica, which has some basic semiconductor supply chains and manufacturing infrastructure in place, is in a good place to leverage its existing infrastructure for expanded investment.

“Even a few contracts from multinational companies can have an outsized impact on their economy, fiscal balances and credit ratings,” the report stated.

According to PGIM, investors should focus on countries with access to free-trade zones. Poland, with its access to the EU, and Mexico are two examples. Countries that offer comparative advantages in their business environments and labor costs like India and Vietnam are also set to gain.

For manufacturing, PGIM listed India, Malaysia, Thailand, Vietnam, Czechia, Hungary, Morocco, Poland, Colombia, Costa Rica and Mexico as such winning countries. Meanwhile. Australia, Indonesia, Morocco, South Africa, Zambia, Brazil, Chile and Peru are set to be winners in minerals and metals.

In the report, PGIM emphasized the need for CIOs to stress-test portfolios for various geopolitical scenarios, such as a 50% tariff on all goods from a specific country or the shock of an invasion. According to PGIM, stress tests are important to understand portfolio exposure to at-risk sectors and countries, as well as to assess whether firms are adequately prepared for risks.

Strategy Considerations

The report also stated that CIOs should consider option-based portfolio strategies to address idiosyncratic risks of a fragmenting global economy, rather than only leaning on portfolio diversification as a hedge against volatility. Two such examples are asymmetric convexity strategies—using long-dated options in a multi-asset portfolio as part of a long-term strategy—and “defined outcome” strategies—cap-buffer structures as downside protection. 

The report noted that volatility driven by economic policy uncertainty could drive asset correlations higher, derailing portfolio diversification assumptions.

“Though it remains uncertain how the global economy evolves from here, one thing is clear: the Dual-Track Era of globalization is altering the macro and investment landscape,” the report stated. “It is up to investors and their asset managers to have the short-term flexibility and long-term vision to capture the emerging new opportunities while also navigating the dynamic risks and vulnerabilities.”

Data & Research March 31, 2025

Changes to Federal Student Loan Repayment Forgiveness Increasing Financial Stress

After payments resumed, the volume of past due federal loans quickly returned to pre-pandemic levels and reached a new high of 15.6% by the end of the on-ramp period, with more than $250 billion in delinquent debt owed by the 9.7 million borrowers, according to the New York Fed.

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Student loan borrowers are experiencing increased financial stress, as 9.7 million borrowers have become past-due on their payments since the COVID-19 payment pause ended in 2023, according to new data from the Federal Reserve Bank of New York.

While the Trump administration has taken actions to limit access to public student loan forgiveness over the last few weeks, there are ways employers can help their employees pay off their student loan debt through different programs.

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More than 55% of plan sponsors offer a benefit to assist their employees’ with the cost of higher or continuing education costs, according to the 2025 PLANSPONSOR Plan Benchmarking Report.

Consequences for Late Payments

Starting this year, borrowers who have not started making payments or repayment arrangements on their federal loans are being reported as delinquent to credit reporting agencies. After payments resumed, the volume of past due federal loans quickly returned to pre-pandemic levels and reached a new high of 15.6% by the end of the on-ramp period, with more than $250 billion in delinquent debt owed by the 9.7 million borrowers, according to the New York Fed.

Rich Williams, former deputy assistant secretary of policy, planning and innovation at the Department of Education, and now the chief customer officer of Summer, a student loan and education assistance platform, says this delinquent debt will make borrowers’ financial lives “more difficult in every aspect,” which will also be felt by their employers.

“Those borrowers will be taking time out of their day to think about how to manage their debts,” Williams says. “The paycheck they receive may not go as far, because it has to go to higher student loan payments if their credit score is impacted.”

Later this year, Williams says if borrowers still do not make repayment arrangements, there are further consequences, like involuntary collections, where the government could take borrowers’ wages by permission of their employer.

Challenges Posed by Trump Administration

Meanwhile, President Trump has signed an executive order dismantling the Department of Education, and the administration has plans to cut about half of the department’s staff. The president also announced last week that the Small Business Administration, instead of the DOE, would handle the country’s $1.6 trillion federal student loan program going forward. However, Williams says Congress likely would need to approve the plan, which means nothing is changing for borrowers right now.

Williams says borrowers will likely have fewer opportunities to get support or answers to repayment questions, because of the offices that are closing, which can result in longer call wait times, less frequent federal updates and a higher risk of loan processing delays and errors as they make payments. At Summer, Williams says the vendor is advising borrowers to back up their repayment data in anticipation of some of those delays and errors.

President Trump also recently signed an executive order that orders rule changes to the Public Service Loan Forgiveness program in order to limit PSLF eligibility for organizations the administration determines are engaged in activities that have a “substantial illegal purpose.”

Williams explains that the executive order kicked off a multi-year review of employer eligibility for the PSLF program, but, he says, changes will not happen immediately. Because it is a multi-year process, he says the earliest that changes would go into effect is the summer of 2027, if ever, because there will also likely be legal challenges.

Student Loan Matching

Summer, as well as other student loan repayment benefit providers, have begun offering services that help employers implement the student loan matching provision created as part of the SECURE 2.0 Act of 2022. The optional provision allows employers to offering a retirement plan matching contribution to employees who are making qualified student loan payments.

Recent research from Candidly, a student loan benefit provider, found a 13.5% increase in first-time participation in student loan matching programs in 2024. Williams says nothing has changed with the setup of the student loan matching benefit or the ability of providers, including Summer, to offer it.

“Employers [that] have offered this benefit are well-positioned to help support their employees navigate this very stressful time, and employers that don’t offer this program should consider it as a way to boost retention, stay competitive and help reduce that debt, [and] stress that employees could have, which could distract from their daily work,” Williams says.

He adds that Summer helps employers verify that employees have made a contribution to their student loan payments, and the vendor helps with the recordkeeping involved. Under SECURE 2.0, participants are able to self-certify their student loan payments in order to receive a match in their retirement plan.

Status of Income-Driven Repayment Plans

this week, the Trump administration reopened online applications for the income-driven repayment plan and loan consolidation for borrowers. This application process was temporarily paused to comply with an 8th Circuit Court of Appeals injunction, issued last month, which directed the DOE to cease implementation of the Biden Administration’s Saving on a Valuable Education Plan and parts of other income-driven replacement plans.

Williams says the DOE reopened applications to three kinds of IDR plans. The department is not yet processing applications, but that is expected to resume in a couple of weeks. In general, Williams says this is a net positive and he hopes that borrowers, in the next few months, who wish to change to an IDR plan are able to do so and get quicker processing by their servicer.

“For employers that partner with companies like Summer to help their employees navigate these programs, these [changes] really didn’t affect them, because those borrowers were likely already on an income-driven repayment plan that was best suited for them,” Williams says. “Where it really created problems were borrowers who hadn’t been taking any actions on their student loans over the past couple years and were quickly trying to do so as credit reporting challenges have started.”

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