Quarterly Outlook
Macro Outlook: The US rate cut cycle has begun
Peter Garnry
Chief Investment Strategist
Summary: More and more consumers will want to use their spending capital to vote for companies that practice sustainability.
It seems like each year volatility in temperatures, seasons and weather — as well as natural disasters —becomes more extreme.
We have had all-time high temperatures being recorded in Australia, where fires continue to rage.
What is even more appalling – apart from poor government response & complete disconnection to the severity of the situation by PM Scott Morrison, a known climate change sceptic — is that rains are not expected until late Feb, so things will likely get worse before they get better.
In Delhi, India – a city normally associated with its baking heat – freezing temperatures were recorded in Dec that were the coldest in over a century.
Climate disasters tend to act like volatility in the markets, whereby volatility begets more volatility. One disaster raises the probability and potential magnitude of another type of disaster, because nature is interlinked. For instance, fires lead to flooding due to destroyed vegetation.
Meanwhile, the mega-cities of major countries are now at risk of sinking & flooding.
As a case in point, the capital of Indonesia is Jakarta, whose greater metropolitan area has a population of 30 million. Jakarta is one of the world’s fasting sinking cities, dropping over 10cm (4in) a year. That is about the width of an adult male’s palm.
The irony that faces the sinking city, that is regularly hit by tropical cyclones as well as sea storms, is that it has a lack of clean drinking water. Given its thirteen polluted rivers, for decades the city has been pumping ground water with virtually no meaningful replenishment of the natural underground basins. This is all due to a population explosion, lack of green space and poor infrastructure. And it is leading to a collapse in the pressure of the ground that is holding up the city.
Some studies suggest that in just ten years, northern Jakarta could be permanently flooded: including the airport. An estimated $40 billion sea wall is being built along Jakarta bay, with the objective of alleviating the flooding pressures and allowing lower water levels so the city’s rivers can drain more efficiently. When around 40% of the city lies below sea levels, this is the equivalent of insisting on staying in a burning house while occasionally dousing the flames with a cup of water.
On a proactive note, the government announced in April 2019 that a new capital would be built elsewhere in Indonesia at an estimated cost of $34 billion. Sometimes it’s better to start afresh and design a city that is built for the sustainability of the future.
There are traditional allocations to the renewables sector which you can access directly through our Saxo Investor. There are also lifestyle consumer choice themes. Tesla [TSLA], for example, is seen by its fans as a disruptor in the renewable and storage energy space from traditional fossil fuel engines and CO2 emitters.
Beyond Meat [BYND] focuses on the plant-based protein theme by creating foods that taste just as good as traditional animal protein, yet sourced from plants. This is a powerful investment theme in social impact/lifestyle change that is going to be Godzilla in size and likely run for decades.
There are going to be at least two key structural driving forces.
The first will be demand driven. More and more consumers will want to use their spending capital to vote for companies that practice sustainability. For instance, probably about 5% of the US’s 330 million people are currently vegetarians, but that ratio that is likely to grow. Companies and entrepreneurs that are proactive in regard to consumer sustainability lifestyle choices will thrive and move ahead.
The second will be supply driven. Governments are coming to fully understand that we are likely past the tipping point where the cost to do nothing in regards to sustainable growth is much greater than the cost of addressing it now. To put it another way, governments need to tip over from being reactive to proactive on the climate crisis.
They need to spur innovation, R&D as well as investments through subsidies, grants & tax breaks.