Ritesh Jain is Director and Strategic Advisor, Eastern Financiers and Economic Advisor, Old Bridge Capital. The Calgary, Canada-based Jain is also a global macro investor and Top 3 Global LinkedIn Influencers on Economy and Finance, Mumbai
He is a trend watcher, Global Macro investor and Blogger at worldoutofwhack.com. He has over 20 years of experience in financial markets, bonds, equities, gold, and derivatives. He muses about global macro investment opportunities, economics, business, and financial issues.
Vietnam is one of the five fastest-growing countries over the past 30 years
- As most countries slipped into a deep recession in 2020, Vietnam is one of the few countries to record positive GDP (2.9 per cent) during the pandemic. The country is now in the midst of the worst Covid outbreak with a swathe of factories either shut or slowed down, further disrupting the existing global supply chains.
- Its openness to trade and investment, low labor costs, stable currency & capitalist political system had led to remarkable export expansion.
- So crucial have its factories become to the global business that in America, retailers (like GAP & Nike) have lobbied the white house to donate more vaccines.
What’s the secret to Vietnam’s success?
- Export Intensive: With an exception of mineral-rich or maritime trade denominated countries, Vietnam is one of the few economies with goods trade exceeding 200 per cent of GDP.
- Since the 1990s, Vietnam has received 6 per cent of GDP via FDI, i.e. 2 times the average global level, far more than China or South Korea ever recorded. This led to a widening gap between foreign capital-infused and domestic companies.
- The economy now is overwhelmingly dependent on investment & exports by foreign companies; while, domestic ones underperform. The government to fire.
Set back from Covid aside, it seems hard not to be rosy about an economy that appears to be in the early stages of emulating an East Asian Economic miracle. There are Vietnam focused ETFs listed in the US with a focus on publicly listed companies incorporated in Vietnam (available for investment by Indian citizens).
2. Uranium Boom: The metal hit six-year high ($35/lb)
- Commodities prices are influenced by supply & demand.
- Uranium is a small market at roughly $6.3 billion in annual consumption (180 million pounds at $35/lb). The spark for this price rise was because SPUT (Trust invests and holds substantially all of its assets in uranium), started buying up & storing physical uranium a few weeks back.
- But why is this important? One of the cleanest & most powerful sources of energy, nuclear power could play a key role in the decarbonization goals of countries. Nuclear reactors use fission (splitting of uranium atoms) to produce energy, making it one of the cleanest and economically efficient energy sources.
Given the cost in-efficiencies associated with Green Energy and rising fossil fuel prices along with concerns around turning net neutral by 2050, there is increased focus on developing Nuclear (Uranium) to meet the increased energy demands.
There are Uranium focused ETFs listed in the US with a focus on companies involved in mining & exploration (available for investment by Indian citizens).
3. But, is it over for other Fossil fuels?
The harder it is to push for a greener economy, the expensive the campaign becomes.
- New government-directed spending is driving up the demand for materials needed to build a cleaner economy.
- At the same time, tightening regulation is limiting supply by discouraging investment in mines, smelters, etc.
- The unintended result is “Greenflation”: rising prices for metals and minerals such as copper, aluminum and lithium that are essential to solar and wind power, electric cars and other renewable technologies.
- Building green economies will consume more oil in the transition period, but oil producers are not responding the same way by not adding on to capacities or increasing output; because political and regulatory resistance has darkened the future of fossil fuels.
- In contrast to the US, China uses 10x more coal than natural gas. In 2020, China built over 3x as much new coal capacity as all other countries combined, equal to one large coal plant per week.
Intense push by world economies to adopt the green revolution has created a supply squeeze amidst rising demand amongst related commodities, thereby pumping up their prices. But, the cost inefficiencies associated with Green Energy are making way for the comeback of fossil fuels.
4. The decade ahead: Real Assets (like Farmland) likely to perform better vs. Financial Assets
‘The Big Short’ fame Micheal Burry buys Farmland hand over fist.
- As risk assets like Equity get fierce with current stock values pricing in most of the anticipated future cash flows; developing macros around rising inflation, taper talks, supply chain issues could weigh much larger on financial assets vs. real assets (like Farmland).
- From 1972 to 2016, farmland outperformed all major asset classes with volatility closer to that of a bond than to stock. (Source: Seeking Alpha). During the last 15 years, farmland prices have had a -35 per cent correlation to stocks; but, a 66 per cent correlation to CPI (Inflation) and 53 per cent correlation to Gold (Source: Gladstone LAND).
- But beyond inflation hedge, there are many other reasons for betting on Farmland one being – “Agricultural land with water on site will be very valuable in future”. The most common way to invest in water is to buy farmland.
- The catalyst that supports strong Farmland performance going ahead is rising world population, shrinking arable land per capita, the steady rise of crop prices, expanding global middle class and increasing farm innovation.
- According to UN FAO (www.fao.org), an increase in population, growth in global GDP per capita will increase demand for primary crops. By 2050, global annual grain production will need a 43 per cent increase from 2005-2007 levels & 2x the quantum of grain produced in the US in 2014.
Farmland can act as a hedge due to low/no correlation with other asset classes, rising commodity prices, reducing acreage per person, supply-side constraints to name a few. Bill Gates had bet big on farmlands, he is the largest farmland owner in the US.
World population expected to grow by 40 per cent till 2050 vs 5 per cent increase in farming – caption.
Ways to invest in farmland are through Focused MFs & ETFs, equity shares of the agricultural companies, purchasing farmland directly or via Farmland underlying REITs. Farmland prices are determined by a set of economic forces, including expected returns from agricultural production, cost of borrowing & potential growth in future returns. Farmland prices rise & fall according to general trends in commodity prices & cost of production.
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