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Investing in our Zeitgeists is an easy way to align your investment portfolio
with your personal beliefs and expectations.
Investing in our Zeitgeists is an easy way to align your investment portfolio
with your personal beliefs and expectations.
“Incredible India” is the slogan intended to tempt tourists to India. Incredible India and the high-gloss images of snow-capped peaks, exotic palaces, and palm-frond-edged beaches basking in the sun. The vision of an “Incredible India” was also what investors found so exciting about the subcontinent. A fast-growing and highly-qualified population, fluent in English and computer-literate, these factors alone should have ensured the country scored high in the international sweepstakes. But for many years everything remained nothing more than a promise that got lost somewhere between the morass of political inefficiencies and China, India’s overly powerful neighbor and regional rival. Something has now changed and the country could in fact actually become “incredible”.
The new ID cards are a global first and give India the chance to leapfrog the West in terms of e-banking and digital services, especially since new competition has suddenly opened up the smartphone market.
One key area to consolidate the current rise of India will be education and income redistribution so has to diffuse wealth into a larger group of domestic consumers. But the progressive opening of the country, a service oriented economy and further infrastructure development offer many investment opportunities.
The central bankers’ mantra? Interest rates have to be low in order to make certain the real economy gets the loans it needs. They’ve been saying this in the US for years, as they have in Europe and Japan. However, nuances have crept into the mantra ever so covertly. As a result, bond investors need to listen very carefully. But let’s start at the beginning.
In the US I think the increase in long bond yields is long overdue, and I believe that the 10-year yields will slowly rise to the three percent level as the US economy shows further sign of momentum.
Rising interest rates could indeed be negative for stock markets, especially if rates go up a lot faster than people expect. But, as so often in financial markets, a risk creates an opportunity, and that is the case here: those rising rates can actually be turned into a positive investment opportunity, hedging against them.
Massive tail fins and blinking chromed trimming – back in the 1950s people were already dreaming of simply getting into a car and being driven to their destination. Without studying a map or having to concentrate the whole time on the traffic. Back then it was a vision. And today? Evidently a realistic goal. A trip where investors may be along for the ride.
I see four main structural trends shaping this Zeitgeist – sharing platforms, autonomous driving, electrification, and connectivity. These four topics are inextricably linked and together have the potential to reinforce and accelerate one another.
Autonomous vehicle will be part of a public investment revolution to begin with: public transportation in inner cities, collecting garbages in suburbs. These could be the first areas of deployment of such vehicles.
The next time you consult your physician may be by e-mail or Skype? This is a long way off for patients in Germany: First the phone call, then the diary entry, then the waiting room. And only then the consultation. Many countries are technologically so far advanced that things could be quite different. And investors are fighting for those companies that will enable medical care 2.0.
It is a global healthcare revolution. And interestingly its actually rather late to the market compared to other areas ranging from music or even automobiles which it was gone more rapidly.
ehealth is a great advance for emerging markets, with potential more affordable technologies available, allowing doctors to make diagnosis in remote places, or reducing the cost of medical care and increasing prevention.
Floods, drought, tsunamis, the Munich Re study lists them all and carefully tots the natural disasters up. And concludes that the number of “damage events” between 1980 and 2015 has almost quadrupled. These statistics are by no means about surprising exceptions for the figures are steadily climbing, or so the re-insurers noted in March 2016. At first sight it the politicians who must to act, for example by introducing international treaties and agreements in order to brake the global warming underlying this process. That said, corporations must also act as their production processes contribute to the warming. And the more the companies rethink things, the better for their investors, too. A linkage that is becoming ever more important.
A fair return that doesn’t cost the earth. Environmentally friendly income. A portfolio of bonds that offer a fair return given their credit risk, but also beat the broader market in the environmental, social and governance credentials of the issuers. I like that combination.
Sustainable bonds offer many advantage when issued by well-established borrower and carry a high AAA or AA- rate, they are liquid, less volatile than other asset classes and therefore fit very well in a diversified portfolio that will include SRI compliant investment vehicles.
Elon Musk is a colorful figure in company circles. After all, the entrepreneur who tends to favor smart casual created the electric car marque Tesla seemingly out of thin air, and with his SolarCity is investing billions in renewable energy. And he makes no secret of it. Not only does he provide headlines for the press, but also gets investors thinking. Because Musk shows that business and ecology can blossom in a symbiotic relationship, that you can make money with “sustainability.” As a result, the topic is increasingly taking the public limelight. Even if things sounded very different at the beginning.
Technology has improved and efficiency in producing and distributing green energy is growing
New mobility and the tougher regulatory environment toward fossil energy will continue to push investment toward clean energy. Furthermore the potential rise in the price of oil will support the shift toward clean energy.
I like the new energy zeitgeist not only because it is good for he environment, but also because it rides a global trend. The cost of solar electricity, for example, is falling below the cost from older, dirtier sources. And big cities are starting to insist on clean fuels, too.
When in September 2011 the price of gold hit a temporary high, the investor community very widely assumed the rally would continue. Now, 700 dollars down, they are declaring the end of gold. “Gold will fall below 1,000 dollars” – investment companies and commodities experts have reached a consensus on this. What the value is will soon emerge. Nothing can be excluded as the price of gold can fluctuate very widely in the short term. In 2014, the price plummeted within only a few weeks by more than 20 percent. However, in the long term gold can offer the requisite portfolio diversification, as it often behaves unlike other investments such as equities or bonds.
The key thing – price has actually come down off the peak. In Euro they came down relativly modestly, in dollar a lot. Since we expect a stronger dollar in the future we recommend the in dollar dominated asset Gold for Euro investors.
In 2017 Gold could be a save haven. We have a new U.S. administration which is actually raising the risk of protectionism and of a trade war. And we also have very key elections in Germany and France with the risk that far right parties which want to leave the EU come to power.
Wherever there is talk of the digitization of the economy and Industry 4.0, one technology has been unavoidable for some time now, namely 3D printing. The manufacturers of the new generation of printers are stumbling over ever new potential applications, promising the segment high growth. Yet the shares of these firms have had a real rollercoaster ride in recent years. Precisely because of this, with a view to risks and opportunities now is an auspicious time to enter the market.
“Perfect position in Hype Cycle! Share prices of 3D companies seem to follow almost perfect “hype cycle” with a bubble about 2 years ago that burst. We are now way below peak and if the hype cycle is followed, we would now move into a long period of years of secular uptrend.”
“They even built a house on 3D printing in China! I’m sure, 3D printing is a great tech for medicine and distant production which need to be instantanous, reliable and flexible production and for remote places.”
Biotech is a key Zeitgeist for the years to 2020 and beyond, invest via a fund that includes many of the companies that are already well advanced in developing the key technologies.
“Biotechnology investments are a strategic sweet spot. On the one hand they are no longer in the early stage on the other hand they have enormous growth potential.”
“The factory is the machine that builds the machine,” says Elon Musk. The CEO of Tesla Motors is talking about his new Gigafactory, a vast production plant now taking shape in the Nevada desert. Tesla has long imported lithium-ion batteries from Asia, but to meet its target of producing 500,000 cars a year, it needs to build them nearer home. “Tesla alone will require today’s entire worldwide production of lithium-ion batteries,” the company says about its goals. The Greek word “giga-“, which means “billion”, has a number of Tesla interpretations, including the Gigafactory’s planned annual battery production capacity of 35 gigawatt-hours.
“The new generation of lithium batteries are much better and the demand especially from car producers is rising due to better distance for electric cars.”
“The prices of these companies are down, but beginning to pick up from their lows.”
Robotics and automation are one of the fastest growing parts of the world economy. Since the start of this decade the technology has advanced, allowing robots to move from being a specialised tool with limited applications, to become mainstream in the automotive sector.
“I vote for Robotics – I think we are coming into a new generation, new markets, new opportunities and good pricing.”
Bonds from emerging countries like Brazil, Russia, Mexico and elsewhere are a major investment theme, a Zeitgeist. They offer quite an attractive yield, often 5, 6 percent or more, which seems reasonable, relative to their risk, at a time when interest rates on bank accounts are zero or very low.
What type of risk is there, alongside that kind of interest? There would not be direct currency risk, since this Zeitgeist is focussed on bonds denominated in (or hedged into) euros, not in the local currency of the issuing country. But there is credit risk. Argentina, for example, defaulted on its bonds less than ten years ago, paying back only a fraction of their value, and has only just settled a complex lawsuit, while Venezuela looks set to default soon. And even if a country does not default, the price of its bonds can fall quite a long way when investors get scared. That happened with Russia, for example, a couple of years ago, even though the prices later recovered most of their losses.
“Emerging Countries like Brazil, Russia and Turkey offer more.”
The Trump effect will probably also affect the stock markets in the coming week. The US president’s promises have been driven the equity markets to new highs in recent months. Now Washington’s Politchaos is causing nervousness on Wall Street, but also on Europe’s stock markets. Stefan Riße reports on the upcoming news and events for the markets next week.
In the end, the moderate forces in France triumphed over the populists. While 2016 was the year of political surprises with the vote of the British people to leave the European Union and the election of Donald Trump as US president, 2017 for the stock markets is running according to plan.
Emmanuel Macron is the new president of France. The stock markets react more easily, but not euphorically. Giles Keating in London and Valerie Pagnol in Paris consider what the election result means in the short and long term for the financial markets.