I bought ‘The World Ahead' yearly, hoping to have some idea of what may happen in the coming year. Here are my takeaways from this edition.
Energy
There are so many things that we need electricity for.
Nations, including Singapore, that can't produce the fuel for it will have to import them and will be at the mercy of the market price.
Thanks to the Russia and Ukraine war, oil and gas price rocketed & some nations have little choice but to refire their coal power plants, some even use their nuclear power plants.
A blow to climate change efforts.
But some countries benefitted from this war, as they have a good relationship with Russia. Russia can sell its oil & gas to these friendly countries at a cheaper rate while these countries can either use them or resell them.
To top it off, renewable energy isn't going to replace fossil fuels fast anytime soon.
Yes, there are a lot of countries aggressively developing infrastructure and investing in technology to green our electricity needs. But it isn't going to replace all the fossil fuel consumption in a short period.
In short, we still need fossil fuels for the time being.
And those oil and gas companies, I am sure they will have some business in the meantime.
Semiconductor industry
Countries realize the importance of semiconductors. Semiconductors are necessary for communications devices, high-tech weapons like missiles, infrastructure management, and many more.
It is hard to say what areas in our lives have no impact despite our technological progression.
However, many of the semiconductor components are imported. This means the supply chain of
Semiconductors are vulnerable and fragile. A disruption may hurt a nation's technological improvement.
Governments around the world are well aware of this problem. And they are building their in-country manufacturing Semiconductor companies, or becoming a major shareholder of the existing ones in their country.
This most likely helps these companies to grow, as the governments most likely award contracts to their home-grown companies.
This also means it is very hard for these companies to expand to other countries. Thus, another Natural Monopoly will happen, and this time, it will be within each country, with its homegrown semiconductor companies.
But how long will it take to achieve this state? I am not sure. Is it a good thing?
I believe so, as each country is aiming to be technologically superior over the others, be it for economical or military purposes, they will research, hire the best talents in the field, nurture their own citizens' children to be in that field, or attract foreign talent (I know, a sensitive topic) to their country to work on this.
So it is good overall.
Countries building up their semiconductor Manufacturing capabilities, making them resilient to supply chain disruption. This also results in creating a high demand for jobs; a reliable income for these companies and spurs innovation greatly. Of course, these companies will get the bulk of their revenue from their native country. Expansion from overseas may be tough, but not impossible.
Therefore these Native semiconductors will have an economic moat within their country. Those international semiconductor companies may see their economic moat erode due to their ‘forces’.
However, how fast will these happen? I am not so sure… but definitely not in the current and near future.
Land, Properties, and Infrastructure
I believe that Land developers may have a harsh time soon. Thanks to inflation.
Why?
The construction sector required a lot of manpower.
Inflation will cause the workers to demand a higher salary.
So will the cost of building materials and related expenses.
If the construction company has yet to collect money from their prospective buyers, naturally they can raise their prices and check the demand and cater accordingly.
But what if the money was collected but the project has yet to start or is in the midst of construction?
The project may not be profitable due to inflation, and the weaker developers may have to make tough decisions.
I suggest taking a very close look at their respective balance sheet if planning to buy any construction companies.
Developers aren't the only ones facing problems. Home sales, mortgage lending, and house prices may suffer due to higher interest rates. Sellers and lenders may have a hard time finding customers & borrowers.
Despite the gloom, the USA still has housing shortages; 3.8 million citizens do not own a house. Though the demand is there, I am just not sure in the near future, what will happen to these companies.
Well… a wise guy told me… the best way to get out of trouble is to stay away from trouble.
Unless I am confident and sure of the company’s economic prosperity, looking elsewhere isn’t a bad choice.
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