Want to avoid trade war risk? Go on the counter-offensive, and invest in future technologies
Being an investor in March 2018 was not easy. Donald Trump, the 45th president of the United States, has raised tariffs on Chinese goods, threatening to end decades of prosperity enjoyed by virtually every country that has sought to embrace free trade with its trading partners.
The extraordinary stock market gains of the last couple of years pits investors against the law of diminishing total shareholder returns. Even the most talented CEOs will struggle to outperform past performance when the Dow Jones Industrial Average rose by a record 5,000 points last year (a 25% gain), and 13% in 2016. S&P 500 average P/E ratios have reached 23, the highest since about 2010. Sure, that’s not the Dotcom high of 30, but it’s high.
Even a portfolio diversified among a constellation of global bonds and equities offers no refuge from the macro risk juggernaut that is a trade war between China and the United States. China has already announced retaliatory measures, including a killer 25% tax on soybeans, planting seeds of terror in the US farm industry. US Secretary of Commerce Wilbur Ross suggested a negotiated settlement to this conflict, but there’s every indication that it will get worse before it gets better.
Gold and the dollar offer the customary refuge from sweeping losses in equity markets, at least in the short term. But what options are out there in equities to hedge against risk?
One bold way of hedging is by betting on the future. This is obviously easier said than done. However, there is a certain predictability to the eventual success of some industries in the making. Take the future of car batteries in electric vehicles (EVs) for instance.
Teams of scientists are still working on optimization models with an array of materials to make the perfect long-lasting EV battery. But they know enough to make an effective battery — enough for just about all of the major automakers to commit to building EV cars in the next five years.
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Even legendary investor Warren Buffett, who is renowned for shying away from industries he is unfamiliar with, stated that the EV battery is “going to happen” in a recent CNBC interview. As a long-time investor in Chinese carmaker BYO, Buffett is not just looking into his fabled crystal ball.
There’s a certain predictability to Canada’s nascent cannabis industry too. Sure, no-one can tell for sure who the eventual winners and losers will be. But the demand for the stimulating and medicinal properties of cannabis have existed for as long as man has roamed the earth. And you can be sure that Canada, a highly developed nation with an impressive pool of human capital and strong institutions, will figure out how to optimally farm, process and distribute cannabis in a legalized, regulated environment. Like Norwegians with aquaculture or Germans with automotive technology, it’s highly likely that Canadian agronomists, engineers and service supply companies will be at the forefront of developing cannabis industries in other countries where the drug is eventually legalized. A cluster is being built.
Finally, a word on cryptocurrencies and Blockchain. 2018 saw the spectacular rise and fall of Bitcoin. Goldman Sachs’ head of Global Investment Research, Steve Strongin, said in February that most of today’s cryptocurrencies will ultimately fall to zero, because current iterations of digital money are too primitive. That said, he believes that this industry has a future. Blockchain, in Goldman’s words, will change the way we buy and sell, how we interact with government and verify the authenticity of everything from property titles to organic vegetables.
That’s why InvestorIntel encompassed these aforementioned industries in its forthcoming Buds, Batteries and Blockchains 2018 conference to be held in Toronto May 3-4th, 2018. An assorted range of experts and protagonists from these futuristic industries will be providing key insights into where exponential returns will be won, regardless of the current capital flight to safety. What these industries share in common is that they will be significantly bigger than now in a decade.
InvestorIntel, the event organizer, is a best-in-class provider of top quality and independent information to investors, with over 43,000 Twitter followers, 25,000 LinkedIn followers and more than 10,000 on its YouTube subscription channel. A top influence in financial media, InvestorIntel also carries deep specialization in these industries from expert editors to a longstanding interaction with the most important protagonists in these industries….looking forward to the daily tweets on newly confirmed speakers!
For more information on the upcoming Buds, Batteries & Blockchain event, click here
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Matt Craze has covered commodity markets for more than 20 years, working as a researcher at CRU International, and for over 10 years as a ... <Read more about Matt Craze>