Global investment themes can be likened to a new law of physics. By that we mean that the forces at work appear to be unstoppable in producing dramatic changes around the world.
A constant at the heart of these themes are the BRIC economies (Brazil, Russia, India and China). Each of these harbour powerful long-term structural dynamics that are putting pressure on the resources of the world and prompting change that has already begun to impact on the wider global economy.
The global economy however has sustained a significant body blow from the dramatic collapse in global industrial production as its slick "just in time" superstructure has been undermined both by asphyxiating credit contraction and plummeting consumer and corporate end demand.
So what does the path to recovery look like? Already the markets have concluded that the BRIC countries, up between 13 per cent and 42 per cent over the first third of this year, will lead the world into the next decade and beyond – and we agree.
Essentially, we are in a transition to a world economy led by emerging markets, and it is this simple truth that underpins the following themes.
Infrastructure
This is the most overwhelming structural theme, with China as the bedrock. China has already taken an aggressive stance on growing its economy over the last 20 years. The Chinese first focused on infrastructure for their growth strategy, and that set them apart from Russia, Brazil and India.
These countries are now learning positive lessons from China’s growth – namely, that to have a world-class economy you need to have a world-class infrastructure in place to support it. India has a far more rural core than China, with millions of people still farming.
However, the prevalence of the English language and India’s large number of highly skilled graduates and engineers has made it a natural home for companies outsourcing some of their operations overseas.
Investing in infrastructure is paramount for India to continue this trend.
The new BRIC consumers
We believe the BRIC countries will emerge from the present crisis strengthened and will continue to be economically successful over the next five to ten years. As a result they will reduce the world’s dependence on the US consumer. Future growth in consumption is going to come from another part of the world – we believe the BRIC economies are going to create enormous new markets.
Environmental technology
Environmental technology has arisen as a major investment theme in its own right, and alternative energy is becoming a mainstream business. We have a global economy that needs energy, but there is only a finite supply of oil available in the world.
Companies producing alternative energy should do well as a result, as people are turning to these sources of energy to meet their essential needs. At the same time, there is growing pressure in the form of domestic and international legislation aimed at combating climate change. These changes in legislation show no sign of abating – directives are actually becoming tighter.
In addition, lifestyles are changing globally as people embrace the importance of protecting the environment. Today, there are huge incentives for people to invest in alternative and cleaner energy solutions.
Agriculture
Agricultural prices are one of the main drivers of global inflation scenarios. As emerging economies demand changes, they are putting specific pressure on the food infrastructure of the world.
The price of 2.8bn people coming into the global food chain properly is having a big impact on availability – not only are people eating more, they also demand better quality food. Global wheat supplies are very low, and it is wrong to assume that supply can quickly be adjusted to meet higher demand.
Increasing long term demand from emerging markets for better quality food, ethanol production diverting land away from food production, and sharply higher farm input prices are the cocktail of factors coming together to drive change.
Energy
Developed economies rely on oil to keep the wheels of their lifestyle in motion, with rising numbers of consumers turning to the roads despite the volatile cost of fuel. However, emerging markets are arguably becoming as dependent on oil as the West.
As a result there is true global competition in energy markets, and the question of which country wants to pay the most to secure its energy needs means that energy price inflation has only just begun.
While oil is the most obvious commodity that we feel we need professionally and personally, the entire Western world shuts down without electricity. We are reliant on the internet, and our electrical systems cannot be allowed to fail.
