Military and trade conflicts globally are forcing long term investors to weigh an increasing number of important issues while formulating their decisions, local asset owners have told AsianInvestor.
The net result of these conflicts is deglobalisation: a shift towards a less connected world, characterised by more localised regulations and cross-border controls, in contrast to global cooperation and free movement.
Deglobalisation threatens to radically alter the nature of world trade and while that is a risk in itself, some investors do see opportunities.
“Combined with logistics costs and delays, rising patriotic ‘localism’ in retail trends mean that domestic sourcing, local design, and onshore manufacturing will experience a boom in growth,” Krizia Li, a Hong Kong-based family office investor and owner of e-commerce platform Vermillion, told AsianInvestor.
She sees threats and opportunities in this new world order. The massive cultural shift of remote workers moving out from city centres to nest in suburban homes is another key factor. Li suggests investors should invest in upgraded furniture and accessories, home office equipment, consumer electronics, and wellness-related products and services.
Any category that enables more remote working, or taps into the shared economy with lower unit costs, would make a good investment. “For example, mid-term co-living and geographically distributed co-working spaces,” Li said.
The decoupling of world trade is an interesting phenomenon for investors to consider, agrees Hong Kong-based family office investor Timothy Tsui.
“A lot of people were worried by the Covid lockdown in China. It stopped a lot of factory production, which hurts all the global supply chains. If you were a brand or a manufacturer, you’d want to have a back-up operation somewhere else, just in case the Chinese government decides to shut off all the factories and stop people going to work.”
Tsui said that’s exactly what’s happening in the semiconductor industry. "You now have TSMC building semiconductor plants in Texas.”
“We are now living in a world where you can’t rely on your neighbour,” Tsui added. And while this is certainly true of China, he said it goes for other countries too.
“People relied on Ukrainian and Russian wheat. Now suddenly that tap is turned off,” he said. Europe has also been heavily reliant on Russian oil and gas, with political leaders turning a blind eye to Vladimir Putin’s dark side, said Tsui.
“What the last 20 years of investing has taught me is that a lot of people in positions of power have been asleep at the wheel,” said Tsui.
THE ESG WAVE
While policymakers struggle to articulate an appropriate balance between global and local solutions, this also places challenges like the movement to curb climate change in greater peril. All of this undermines investor confidence in the stability of markets.
Nonetheless, Li believes the ESG wave is unstoppable and that investors should continue to ride that particular tide.
“Any ESG-related products will be a future hit. Regulations are helping to push ESG standards through every single layer of the consumer economy. For example, renewable energy, eco-friendly batteries, software to optimise carbon footprinting, and recycling technologies.”
The tech aspect is key for family investors. Li thinks technologies around extending water and food security will be on a gradual rise, due to worsening patterns of seasonal climate change.
Tsui agrees: “As an investor, the deglobalisation trend has changed the way I think. But, I’m a big believer in technology and software. The technology could be internet-based or blockchain-based.
“A lot of things are changing for the better. [For instance], new therapies and new medical devices are emerging in the treatment of cancers.”
The controlled immigration that often results from deglobalisation will have negative consequences for some.
“We have a greying population in the developed world, even in China. We have a global demographic crisis, with not enough children. It’s going to change everything,” said Tsui.
For investors, this presents further opportunities, said Li.
“A rapidly ageing demographic means a longer runway for subscription-based assisted living facilities or e-health platforms, online estate planning software, and products that help to prolong quality of lifestyle for silver hair consumers.”
Sectors she recommends avoiding include real estate and cryptocurrency-related assets.
“Real estate is undergoing a restructure, with people shifting to remote work, and a smaller corporate footprint,” said Li.
“And avoid crypto or NFTs, as anything with a time horizon beyond one quarter remains too uncertain.”
Tsui is not quite on the same page, however. “Things have changed, but we can’t go backwards. Crypto is here to stay.”