Sectors Caught in the Crosshairs of a New Era of Globalization

Megatrends

A New Era of Globalization | Chapter 2

Deglobalization is playing out more narrowly and more slowly than is commonly thought. In sectors at the heart of great power rivalry and protectionist industrial policy, a new set of investment opportunities and risks are emerging. There are three sectors where industrial policy is quite rapidly altering the investment landscape:

AI and Advanced Semiconductors
Electric Vehicles
Metals and Minerals

The dynamics for advanced chipmaking differ significantly from most other manufacturing processes, due to its capital-intensive and “winner-take-all” nature as well as a truly global supply chain.
Industrial policy actions aim to build up domestic fabrication capabilities for advanced chips and reduce reliance on China and Taiwan.
Increasingly, companies integral in the chip value chain—like Nvidia—are finding themselves entangled in trade restrictions that are designed to limit technology transfer.

Electric Vehicles

China is the largest consumer market for EVs, accounting for 60% of sales in 2023.
China, which by some estimates has poured over $230 billion into EV makers since 2009, is also the biggest producer and dominates supply chains.
The EU and US have responded to Chinese dominance by increasing tariffs to protect their domestic industries.

Metals and Minerals

Copper, nickel and lithium are a few vital inputs for electrification, batteries and clean energy, while rare earths are essential for making semiconductors.
Because metals and minerals are geographically dispersed, no country has an absolute advantage in mining—but comparative advantages exist across other segments of the value chain.
China has become the world’s leading producer and refiner of several critical metals and minerals, after spending decades securing access.

Investment Implications

Semiconductors & AI amidst great power rivalry

Advanced computer chips are critical for cutting edge AI models and applications, but great power rivalry is creating a more fragmented market and increases uncertainty.
Incumbents, however, will be hard to replace and investors should consider sticking with companies that have a diverse set of customers across multiple segments of technology while also expanding their geographic footprint to address regional fragmentation – such as TSMC

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Winning the EV race

While the world is shifting towards EVs, many automakers have missed the start leaving EV manufacturers such as Tesla and BYD with a big advantage.
Despite facing steep tariffs in Europe and the US, BYD has growth opportunities in Southeast Asia, Latin America and the Middle East. They are also increasingly stepping into higher-margin luxury EVs.
Tesla also has export opportunities, especially in Latin America. They are also leaning into self-driving taxis that have the potential of being the mass-market cars of the future.

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Real estate opportunities on both sides of the US-Mexico border

Despite temporary roadblocks, the near-shoring momentum creates a strong tailwind for industrial real estate in Mexico. Importantly, leases are denominated in US dollars and tenants are often large multinational manufacturers.
A steady demand for industrial real estate in the US from near-shoring trends is often overlooked. Specifically, the need to re-freight cargo from Mexico once it arrives on US soil.

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No way around critical minerals & metals

Copper is critical to several major industries including EVs, semiconductors, renewable energy and construction. While long-term demand is robust, supply is more limited, making the fundamentals intriguing for investors.
Two pure-play copper miners – Ivanhoe Mines and Ero Copper – may offer solid growth prospects for investors. Additionally, Southern Copper and Freeport-McMoRan are large producers with economies of scale.

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Some investors presume the mere presence of tariffs and industrial policy drastically reduces investment opportunities for even dominant firms in those sectors where it is focused. However, that is not always the case.”

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