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Talk of robots was very big at the latest event attended by BlueChip Communication. And no – it wasn't a Star Trek convention (maybe next year?).
The event in question was the inaugural Global Investment Forum held in Sydney on 12 March. And the robot talk formed just one part of deep and lively discussions between some of the world’s leading investment managers and forum participants: primarily CIOs from major local investment and wealth management firms.
The theme of the discussion? Global trends that investment managers should be factoring into their portfolios sooner, rather than later, to achieve returns in a falling cash environment. The horizon concerned was five or ten years hence – if not longer – with funding for the upcoming wave of boomer retirees top of mind.
Which brings us to the robots (or nearly). The impact of fundamental structural shifts in the world labour market was just one factor forum participants were advised to consider. Cost of labour has been a key differentiator in the manufacturing fortunes of developed versus emerging markets, with cheaper labour from the latter the game changer over the past 20 years or so.
However, advised forum presenter Louis-Vincent Gave, CEO and Joint Portfolio Manager Asian Opportunities, from Hong Kong-based investment and research specialist, GaveKal, all that is set to change.
The rise of emerging economies’ middle classes and related higher lifestyle and career expectations (think, six million university graduates a year from China alone, up from just 300,000 or so annually in the 1990s) means those costs are rising. Couple this with the major efficiency squeeze that’s seen US corporations get their balance sheets back in order and ready to compete, and we have the unprecedented example of manufacturers moving their emerging-based operations to the US – to save costs. Energy giant Methanex’s relocation from Chile to Louisiana was the case in point.
The advent of third (second?) world wages to the USA (and potentially other first [second?] world markets) may be viewed as a mixed blessing by some and certainly opens a whole can of social and geopolitical worms (think the vexed issue of productivity and what price to achieve it) … but that’s a story for another time. Suffice it to say it’s a fascinating turn of events that bears close watching by those seeking to turn – or save – a dollar from the myriad market and industries likely to be affected – among others.
So now can we get to the robots?
So glad you asked!
If the above described labour shifts were not enough to get the thought juices flowing, Mr Gave also asked participants to consider the potentially vast economic and social implications of the growing development and use of robotics in place of manual labour. According to Mr Gave, Foxconn is looking to replace half of its 1.2 million workforce with robots. He also estimated that, in the not-too-distant future, increased automation means the entire global supply of motor vehicles could be manufactured by a mere 50,000 head human labour force.
For investment managers, this would suggest an opportunity to direct funds toward robotics (and be mindful of the social and geopolitical effects of mass unemployment …).
In fact, Mr Gave predicted that, just as technology boomed in the late 1990s, so too will robotics through the 2010s and beyond. His firm has created a Robotics Index that bears this out: it has significantly outperformed other classes since inception. And, in a rare piece of good news for that nation, more than half the companies currently represented on that index are Japanese.
Speaking of which – to a brief summary of just some of the other global trends flagged at the Forum:
- The considered devaluation of the traditionally powerful Japanese yen will have a major effect on various economies, in particular those with industries in direct competition in vehicle and other manufacturing concerns, for example – notably Germany and Korea.
- For the same reason, the word’s greatest savers – the Japanese – will be more inclined to send their $9 trillion in savings offshore to work harder for them – a potential bounty for those who figure where that money’s likely to go and get there first.
- The effect of changes in energy costs and the ongoing shift in the global energy ‘balance of power’ is another key investment theme. The significant turnaround in US energy fortunes from its coal seam gas boom and consequent reduction in energy prices, along the very real prospect of the US becoming an energy exporter, rather than an importer, will have wide and deep investment impacts, for example.
- Whether one views quantitative easing as a ‘blessing’ or a ‘curse’ (or, more likely, both), its unwinding in both the US and elsewhere – whenever it happens, which remains the big question – will be a point of significant risk for which investment managers should be preparing now.
- And, while on the subject of the US Treasury: the question of whether the USD can remain the global reserve currency when there is increasing use and trust in the the renminbi – including in a growing RMB debt market – provided plenty more food for investment thought.
The big message from the Forum: for investment success, keep your eye on the big, as well as the small, picture. And lift your gaze from the local scene. Because there’s plenty of change and surprises ahead.
The Global Investment Forum was a joint venture convened by Certitude Global Investments and Portfolio Construction Forum. Certitude Global Investments is a BlueChip Communication client.
