Each weekend I set aside time to comb through the financial press. I always begin with the Financial Times and then wade into The Economist, Barron’s, The New York Times and The Daily Telegraph. It’s not light entertainment.
It’s hard work and takes rigid discipline to grind through story after story reflecting the views of Nobel laureates, economists and fund managers on when they believe the Federal Reserve will begin raising interest rates, or whether the uptick in inflation will be fleeting or will spiral out of control and send the global economy into a tailspin. It’s easy to doze off or be distracted by Euro2020.
Yet, this past weekend I came across a few short pieces revealing vital changes happening in important industries that, in my opinion, will unlock worthwhile investment opportunities in the future.
The first was in the Telegraph that talked about how the Auto Renaissance had caught out motor manufacturers across Europe and the UK with the speed at which the customer — not the company nor the government — was driving the demand for electric vehicles.
These seismic shifts come around every 20 or 30 years in an industry and failing to adapt to the changing needs of the consumer could enervate the operation and eventually put it out of business.
The writer estimated that businesses in the UK alone would need to spend about £8bn on gigafactories and other facilities to equip the producers for the ensuing electric vehicle wave. This was a fraction of the amount US and European firms were committing.
The swift move from fuel-driven engines to battery power has required big modifications in design, skills and materials. So much so that Ferrari, the creator of iconic sports cars, recently appointed Benedetto Vigna, a manager with 26 years’ experience in the semiconductor industry, to lead the business into the digital age.
The Financial Times gushed about Nike’s numbers. Rightfully so. Sales doubled in their fourth quarter and income surged. They suffered in China from a consumer boycott levelled at their stance against forced labour at a cotton plant in the Xinjiang region, but this was offset by a sizeable pickup in American revenue.
Nike’s range of athletic footwear and apparel allowed them to rank with the likes of Zoom, Amazon and DocuSign as a lockdown winner, but it was their wise and perceptive swing from Main Street stores and third-party distributors to selling direct to customers through digital channels that dazzled analysts.
Competitors such as Adidas, Puma and Under Armour have revised their business models accordingly, but if Nike’s designers can retain their trendy edge, they will continue to cross the finish line first.
I am still caught in the middle of the commodity price debate. Twelve months ago, Brent oil was $40 a barrel; it is currently $75 a barrel. Copper was $6,100 per metric ton; it is currently $9,225 per metric ton. Iron ore has doubled, and palladium is up 40%.
Analysts are convinced the market is overheated and are forecasting a big retreat in prices. Kumba’s market value discounts a long-term iron ore price of $100 a tonne, a far stretch from its present level of $200 a tonne.
The Economist points out that the new generation of mining bosses have stuck to their promise and not pursued costly and often disastrous mega-projects. Few big houses have new mines in the works. Yet, the high expense of energy transition and the chance of more Biden-inspired infrastructure programmes could prove a bonanza for miners.
With mining heads conscious of a climate-friendly world and keen to maintain their financial discipline, I’m banking on probable supply-side shortages keeping the commodity market alive and well.
• Shapiro is deputy chair of Sasfin Securities.
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