15 "what ifs" for the year 2030
15 "what ifs" for the year 2030
As a very challenging 2020 draws to a close, everyone is looking to the future: when will the vaccine arrive? When will life return to normal? When will I be able to go to the pub with my friends again?
But as a fund manager, it’s important to not only look to the short term, but also to think much further out. Forget what 2021 will look like - what will 2030 look like?
That’s why my colleague Lee King Fuei and I came up with 15 investment “what ifs” for the year 2030, which are laid out in the chart below.
Some of these things might not happen. It’s possible that none will. But we think it’s helpful to consider and debate among ourselves what could lie ahead when you’re investing for the long-term.
Rather than discussing all 15 here, I’ll just expand briefly on a few of those that are having a more direct bearing on how we invest in Asia.
1. Peak oil was in 2019; total oil consumption falls by 30% by 2030.
We are now convinced that oil is indeed a sunset industry. As the chart below from oil major BP demonstrates, we are probably close to peak oil.
Oil companies are cheap. But they are cheap for good reason. They either face long-term structural decline and becoming ESG (environmental, social and governance) pariahs, or have to reinvent themselves by diversifying to become green energy plays. Given this is a whole different skill set, we expect most to fail in this area. We would be unlikely to invest in any oil and gas companies.
2. New car sales in 2030: 70% are electric vehicles or plug-in hybrid electric vehicles, and in many countries are fully autonomous.
We believe that it’s going to be hard to differentiate between mass market electric vehicles (EVs) in the years to come. They have far fewer moving parts (versus a traditional car) and standardised technology. The batteries, motors and electronics for mass market EVs are going to be broadly the same. We wonder if EVs will become like large panel TVs, personal computers and smartphones – a fairly standard product where it is hard to differentiate between brands. As a result, profit margins become wafer thin.
Ultimately, given much of an EV is actually an electronic product we would also not be surprised if they are at least in part manufactured by large contract assembly companies like Hon Hai and Flextronics.
We are staying away from all auto-related stocks, whether internal combustion engine-focussed or EV focussed.
Looking at the near-term, we think current moves in this sector in Asia are irrational and symptomatic of a bubble. The valuations in Chinese EVs right now look extreme – with the market assuming all are going to be the next Tesla. This is despite the fact there are estimated to be around 500 new start-up EV plays in China according to Arthur D Little management consulting, of which only 60 have produced vehicles. Many are well-funded, but produce few vehicles. Just lots of losses.
Tesla is very different to all these overpriced companies. Along with a visionary product, it has software, charging infrastructure and has mastered how to build its visionary products to scale. We expect inevitably most Chinese EV start-ups will fail and many investors will lose a lot of money.
3. Globalisation rescinds: global trade volume as a % of GDP falls back to 1970s levels (i.e. from 60% in 2018 to 30% in 2030).
The current gradual decline in trade volumes as a share of global GDP is one we find interesting. Is this structural and long-term or just cyclical and shorter-term?
We increasingly think it may be structural as the world moves to services and software. That is, we move to a virtual world, and manufacturing at least in part gets moved back on-shore as there is a greater desire for self-sufficiency. This would see a move away from optimised supply chains, especially where they are centred on China.
What does this mean for investing? We are cautious long-term on shipping and ports but also wary of export companies based in one location. It also poses a challenge to emerging markets who have an economic growth model that is based on becoming a manufacturing export base.
4. Intangible assets (non-physical assets such as brand) are 50% of business investment in 2030; manufacturing shrinks as a % of GDP.
As strength in services and successful investment in intangible assets becomes more important – this favours China, Taiwan, Korea, Singapore and possibly India over south-east Asian countries.
With intangible, non-physical assets rising in importance and accounting for a larger share of GDP, analysing how companies are investing will become much more interesting and trickier going forward. The days when Asian equity indices were full of property, banks, manufacturing companies and telecom stocks are very much over.
5. Leisure travel returns post Covid-19; business travel does not.
6. Office workers spend 50% of work hours at home in 2030 (vs. 5% pre-pandemic).
Will we go back to our offices in the brave new post-Covid world? For sure we will, but we doubt to the same extent. This could make city centres a very different place. Offices could be smaller and more local.
But we still think we will need offices, and in places like Hong Kong and Singapore maybe the environment doesn’t change so dramatically, given cramped housing conditions and excellent connectivity. We actually think as a contrarian value trade, Hong Kong and Singapore office property is interesting. We are less interested in retail property – as we explain below in relation to “what if” number 7.
7. 40% of retail sales are online in 2030 (vs. around 10% of total retail sales in 2018).
Our forecast of 40% of global retail sales to be online by 2030 could be conservative. In some countries like China we are already there.
For investment purposes, we think the decline in rents and capital values for retail and a lot of office property will be dramatic. This leaves us cautious on property stocks and banks in Asia (given much of the security for bank loans is property). And this is even before we start talking about government interference in banks and disruption resulting from new financial technologies, or “fintech”.
8. Terrestrial television and printed newspapers no longer exist.
9. Healthcare in wealthy countries is tailored, online, predictive and preventative.
10. Agriculture is massively disrupted; technology changes the most traditional industry of all.
11. “Sin taxes” become an ever bigger source of government income; large scale sugar, plastic and environmental taxes.
12. Banks, transport, utilities - all become quasi or fully-owned/controlled by government, rendering them uninvestable.
13. MMT (Modern Monetary Theory) is adopted by most Western countries to inflate away debts; socialism returns.
14. JM Keynes’ prediction from 1930 comes true - that in 100 years’ time, his generation’s grandchildren will work a 15-hour week and have more leisure time.
15. Climate change accelerates faster than anticipated; we are already past the tipping point.
Last, but certainly not least, climate change is an issue we take very seriously when investing in Asia.
Because of its geography and high population density, Asia is one of the regions most likely to be negatively affected economically by a warmer climate. There is significant debate at the moment on the acceleration of climate change. We are not experts, but it does look like numbers are currently trending at the high end of past climate model forecasts.
This is worrying for a region with huge populations sitting on deltas and also large agricultural bases already facing water stress, particularly in India and Northern China.
Our belief is that the focus on the climate when investing will ratchet up very quickly in Asia – this is set to become a much bigger issue. For our part, we are looking for companies that are part of the solution and avoiding those that are potentially creating the problems.
- My colleague Toby Hudson took a nearer-term look at Asia's future here - Outlook 2021: Asian equities.
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