The tangible world is fighting back The tangible world is fighting back The tangible world is fighting back

The tangible world is fighting back

Peter Garnry

Chief Investment Strategist

Summary:  The world and the global equity market can be divided into two parts; the tangible and the intangible. Since 2008 the tangibles driven industry groups have severely underperformed the intangibles driven industry groups due falling interest rates and an explosion in profits by companies utilising a lot of intangibles in their business model. However, since the Covid vaccine was announced the world came roaring back causing demand to outstrip supply and thus fueling inflation. The lack of supply of physical goods in the world and deglobalisation will be a theme going forward and our bet is that the tangible world will stage a comeback against the intangible world.

The Great Financial Crisis proved to be the end of the tangible world

The SaxoStrats team has been talking a lot about how intangibles took over the world and now the time has come for the tangible world to win back some terrain as years of underinvestment has created enormous supply deficits in energy, food, metals, construction materials etc. We have finally created two indices capturing the market performance of intangibles and tangibles driven industry groups. These indices will make it easier to observe performance in these two parts of the economy and will enable us to quantify whether our “tangibles are coming back” thesis is correct.

When we look at intangibles vs tangibles over the period 1998-2022 it is clear we two distinct periods. From 1998-2008 the tangible part of the economy delivered the best total return to investors driven by a booming financial sector, rising real estate prices, and a commodities super cycle. Since 2008, the separation of the two parts of the economy becomes very clear. Lower and lower interest rates are inflating equity valuations of growth assets and intangibles driven industry groups are seeing an unprecedented acceleration in profits due to software business models maturing and e-commerce penetrating all consumer markets fueling the outperformance.

If we look at the relative performance the tangible world peaked in April 2008 and was more or less in a continuous decline relative to the intangible world until October 2020. In November 2020, the revelation of the Covid vaccine reopened the economy so fast that demand come roaring back to a degree in which the physical supply of goods could not keep up. Prices began to accelerate causing the current run-away inflation and headache for central banks. The tangible world has since done better relative to intangibles and if we are right in our main theme of an ongoing energy and food crisis combined a multi-decade long deglobalisation then tangibles should continue to do well.

Intangibles are still ahead despite rising interest and the current energy crisis

During the pandemic the intangibles driven industry groups did better than the physical world because the whole world went into lockdown. Intangibles driven industries were suddenly necessary for making the world go around when we could not operate in the physical world. Government stimulated the economy in extraordinary amounts across monetary and fiscal measures and the demand outcome from this stimulus has caused global demand to outstrip available supply and especially of things in the physical world.

The outcome of this has been inflation and also a comeback to the tangible world, but the tangibles driven industry groups are still behind the intangibles measured from the starting point of December 2019. It is our expectations that as interest rates are lifted to cool demand and inflation in the short-term the tangible world will gain more relative to intangibles.

What has been the best performing industry group since 1998?

One thing is to look at the aggregated indices of the tangibles and intangibles driven industry group, but another interesting observation is to look at the best performing industry. There were three close industry groups, but by a small amount the performing industry group has actually been the retailing industry.

The industry group was not creating a lot of shareholder value until after the Great Financial Crisis when the e-commerce, automation, and digitalization combined with expansion of manufacturing in China lifted profitability and market value of retailing companies. The largest retailing companies in the industry group today are, Home Depot, Alibaba, Lowe’s, Meituan, and

Our definition of tangible and intangible industry groups

Tangible assets are loosely defined as physical assets one can touch and feel, and which can be collateralised for loans. This definition is too broad and not meaningful, because in the consumer services industry group, which we have defined as driven by intangibles, you find companies such as Starbucks and McDonald’s which both employ a lot of physical assets in their business.

The way we have defined intangibles and tangibles driven industry groups was going back to 1998 and calculate the market value to assets for all the active companies at that point in time. We need calculated the average ratio for each of the 24 industry groups. All the industry groups with a ratio above the average of all groups we put into the intangibles. If the market value is substantially above the book value of assets on the balance sheet it must mean that the market is putting a value on something that is not there, or at least in accounting terms, and this is clearly the intangibles. So for McDonald’s they do employ a lot of physical assets but it is the branding, store network, product etc. that derives the meaningful value creation and thus the market is valuing the company way above the book value of its assets. One could argue that McDonald’s is a hybrid company but for our purposes we define it as being mostly intangibles driven.

The full list is presented below. Banks are interesting because many think they are driven by intangibles because it employs a lot of people, but the thing is that banks are essentially deriving their profits from the spread between loans and deposits. The majority of bank loans are tied to physical assets and thus banks are tightly connected to the physical world.

Tangibles driven industry groups

  • Automobiles & Components
  • Banks
  • Capital Goods
  • Commercial & Professional Services
  • Consumer Durables & Apparel
  • Diversified Financials
  • Energy
  • Food & Staples Retailing
  • Insurance
  • Materials
  • Real Estate
  • Telecommunication Services
  • Transportation
  • Utilities

Intangibles driven industry groups

  • Consumer Services
  • Food, Beverage & Tobacco
  • Health Care Equipment & Services
  • Household & Personal Products
  • Media & Entertainment
  • Pharmaceuticals, Biotechnology & Life Sciences
  • Retailing
  • Semiconductors & Semiconductor Equipment
  • Software & Services
  • Technology Hardware & Equipment

Quarterly Outlook 2024 Q3

Sandcastle economics

01 / 05

  • Macro: Sandcastle economics

    Invest wisely in Q3 2024: Discover SaxoStrats' insights on navigating a stable yet fragile global economy.

    Read article
  • Bonds: What to do until inflation stabilises

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain inflation and evolving monetary policies.

    Read article
  • Equities: Are we blowing bubbles again

    Explore key trends and opportunities in European equities and electrification theme as market dynamics echo 2021's rally.

    Read article
  • FX: Risk-on currencies to surge against havens

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperform in Q3 2024.

    Read article
  • Commodities: Energy and grains in focus as metals pause

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities in Q3 2024.

    Read article

Saxo Capital Markets (Australia) Limited prepares and distributes information/research produced within the Saxo Bank Group for informational purposes only. In addition to the disclaimer below, if any general advice is provided, such advice does not take into account your individual objectives, financial situation or needs. You should consider the appropriateness of trading any financial instrument as trading can result in losses that exceed your initial investment. Please refer to our Analysis Disclaimer, and our Financial Services Guide and Product Disclosure Statement. All legal documentation and disclaimers can be found at

The Saxo Bank Group entities each provide execution-only service. Access and use of Saxo News & Research and any Saxo Bank Group website are subject to (i) the Terms of Use; (ii) the full Disclaimer; and (iii) the Risk Warning in addition (where relevant) to the terms governing the use of the website of a member of the Saxo Bank Group.

Saxo News & Research is provided for informational purposes, does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. No Saxo Bank Group entity shall be liable for any losses that you may sustain as a result of any investment decision made in reliance on information on Saxo News & Research.

To the extent that any content is construed as investment research, such content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication.

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments.Saxo Capital Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Capital Markets or its affiliates.

Please read our disclaimers:
- Full Disclaimer (
- Analysis Disclaimer (
- Notification on Non-Independent Investment Research (

Saxo Capital Markets (Australia) Limited
Suite 1, Level 14, 9 Castlereagh St
Sydney NSW 2000

Contact Saxo

Select region


The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit

Saxo Capital Markets (Australia) Limited ABN 32 110 128 286 AFSL 280372 (‘Saxo’ or ‘Saxo Capital Markets’) is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms, Financial Services Guide, Product Disclosure Statement and Target Market Determination to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Saxo Capital Markets does not provide ‘personal’ financial product advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Capital Markets does not take into account an individual’s needs, objectives or financial situation. The Target Market Determination should assist you in determining whether any of the products or services we offer are likely to be consistent with your objectives, financial situation and needs.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website is not intended for residents of the United States and Japan.

Please click here to view our full disclaimer.