This matters enormously for equity investors because there has for years been a close link between world trade growth and annual changes in the All-Share index. Since 1996 the correlation between the two has been a hefty 0.55 - and except for a period in 2002 when share prices fell as world trade recovered the two have moved almost in lockstep with each other.
One reason why world trade matters so much for equities was pointed out back in 1776 by Adam Smith. He began the Wealth of Nations with the claim that "the greatest improvement in the productive power of labour... seem to have been the effects of the division of labour". Slower growth in world trade betokens a slowdown in the progress of the international division of labour, which limits economic growth - and if growth expectations fall, so too should share prices. It's no accident that a slowdown in world trade growth has coincided with slower growth in western economies generally and with talk of secular stagnation. You only have to look at North Korea to see that a country that tries to be self-sufficient ends up dirt-poor.
Another reason is simply that confidence and openness go together; nations which are loath to trade with each other are likely to be inward-looking and fearful - and fear means falling share prices.
So, why is world trade growing so slowly?
One reason is that companies have learnt that there are limits to their ability to outsource production to low-wage economies. Long supply chains are difficult to manage, which can lead to lower-quality production - as food companies discovered in 2013 when meat products were found to be contaminated with horsemeat. Such difficulties, allied to rising wages in China, have led some firms to reshore production - to move it back home.
What's more, since the financial crisis, firms have feared that even if bank credit is available to them, it might not remain so when bad times return. This has made them reluctant to invest in export sales networks; in this sense, weak trade growth might be part of the same phenomenon as weak capital spending.
On top of all this has been the emergence of a customer preference for localism. Concern about food miles, the popularity of farmers' markets, artisanal products and craft beers are all signs of a desire for home-grown stuff.
And herein lies the problem. These developments might not be merely cyclical but rather longer-term trends; they might explain why there's no sign of a pick-up in world trade despite signs of better growth in euro area output. We think of secular stagnation as a description of low innovative activity and weak capital spending - but another aspect of it is the sluggishness of international trade. And history tells us that while trade growth stays low, so too will equity returns.
