The centers of gravity in markets keep shifting regardless of geopolitical chaos. While traditional asset classes such as stocks and bonds (privately or publicly traded) continue to attract enormous waves of capital circling the planet, new market technologies and asset classes are shifting where that liquidity is directed.
The center of gravity in the global economy keeps moving toward new sets of assets and it is particularly important for investors to identify these movements. While there is wisdom in sticking with traditional principles of value investing, it is equally important to keep an open mind with respect to new technologies and new asset classes. The following asset classes, some of which are new, some of which are older but changing significantly, are growing in importance as we move forward into the future:
· Semiconductors (GPU chips).
· Cryptocurrencies.
· LNG (liquified natural gas).
· Carbon credits.
· Electric vehicles (EVs).
The acceleration of investment in these assets is dominating markets to a greater extent than ever. Large influxes of capital into new asset classes always raises legitimate questions about valuation and sustainability. And each of these asset classes is controversial with detractors raising legitimate questions about their value and sustainability. The semiconductor business is notoriously cyclical and AI has yet to produce revolutionary revenue-producing products; cryptocurrencies are unproven and thought by many to be worthless; LNG is tarred with the fossil fuel brush; and carbon credits are a new asset class still establishing universally recognized standards. EVs are experiencing a retracement phase as automakers struggle to meet government mandates while consumer demand is failing to meet optimistic expectations due to high costs, inconvenience, and questions about the true environmental impact of the vehicles. Big Three automakers are currently losing large sums of money on their EVs while TSLA is again struggling to live up to its egregiously high market cap.
These asset classes are attracting trillions of dollars of investment not merely from the private but also from the public sector. Private sector investors are seeking attractive real (inflation-adjusted) returns on their capital in a world where returns are challenged by inflation, regulation and politics. Governments are funding activities that meet either geopolitical or political needs. It is always easy to dismiss the next “new thing” but some “new things” prove to be great investments. Before dismissing these investments, we should ask why they are attracting so much capital and whether inherent skepticism about new ideas is leading us to miss things that others are seeing. After all, the world was built by people who looked forward, and we are best served by looking backward to better forecast and prepare for the future.
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