Our physical world is too small to deal with the demand created by the energy shortage and the supply crunch. We haven’t got enough willing workers, manufacturing capacity or energy assets. So now we have to build them. The next few decades won’t be about apps, brands and eyeballs. They will be (in fact, already are) about building energy assets, improving electricity grids and building new manufacturing capacity across the western world. Think capital expenditure boom and industrial super-cycle.
In this environment, knowing how to invest in companies dealing in intangibles in a low-inflation environment is useless. You need to know how to invest in tangibles (the “builders of supply” as consultancy TS Lombard call them) in a middling-inflation environment — and you need to know how to do that at reasonable valuations, given that the end of the low-interest-rate world is also the end of the world in which price doesn’t matter.
Last year, 75% of those surveyed by the AIC said they expected global stock markets to rise in 2022 (this may be why, on AJ Bell numbers, only 13% of UK active funds this year outperformed their passive equivalents). This year, only 56% expect the same for 2023 — a clear lack of consensus! Either way, it seems likely that the market leaders will be energy, resources and industrials.
Consider me on the side that says this is not a blip — the same side as Morris Chang, founder of Taiwan Semiconductor Manufacturing Company. As he said: “Globalization is almost dead and free trade is almost dead. A lot of people still wish they would come back, but I don't think they will be back.” Forget everything you have learned about investing in the last 20 years.
Merryn Somerset Webb is a senior columnist for Bloomberg Opinion covering personal finance and investment. Previously, she was editor-in-chief of MoneyWeek and a contributing editor at the Financial Times.