The Russian invasion of Ukraine caused geopolitical turmoil not seen in decades. Russia is being condemned and economically isolated by the West, while there remains a great deal of uncertainty about how China will respond to the war. Everything points to a clearer distinction between the democratic West and the authoritarian East in the coming years.
Investor Peter Hermannrod believes there is no doubt. This means major disruptions to global trade.
The relationship between the United States and China is much colder, and I see the decline of globalization as a reality. Hermannrod says I invest based on the perception that this development will only continue.
Deglobalization means less trade, which in turn could mean lower growth and higher costs. In general, there is reason to believe that it is negative for stocks, but Hermannrod believes that he has found someone who can benefit from them.
– I’ve taken turns towards electronics manufacturers, because I believe in more reporting back home in the future. In Norway, I bought Kitron, but I’m also on Swedish Note and Finnish Incap. It’s incredibly common, says Hermannrod, how more and more companies want to produce closer to themselves now.
Hermanrud is now also investing in oil services in the form of Subsea 7 and TGS. He also loves salmon, holding positions at farmers Mowi, Lerøy and Salmar. In retail, he fell in love with the interior design chain Kid, and he still holds equity degrees in Norwegian banks.
Hermannrod has always been open about his preference for car shipping, and has invested heavily in Höegh Autoliners and Wallenius Wilhelmsen. He wouldn’t say the size of the positions, but since his first day as an investor, Wallenius Wilhelmsen is up nearly 100 percent. Höegh Autoliners are up more than 40 percent since the listing in November last year.
Car shipping is also experiencing declining globalization and lower economic growth, but car production is already abnormally low as a result of the increasing difficulty of obtaining semiconductors. In addition, the green transition will provide strong structural growth for mining equipment. I weighed myself down a bit, but that’s still the biggest joint position for me, says Hermannrod.
Hermannrod thinks container shipping will suffer much more. A shortage of shipping containers and adventurous freight rates have given many shipping companies record profits during the pandemic. The MPC container ships listed on the Oslo Poor’s are up nearly 1,500 percent since hitting a bottom in August 2020.
“It could go from heaven to hell out there, now that more production is being put close to the customer at the same time that many new container ships are being built,” Hermannrod says.
Declining global trade isn’t the only China-related problem that worries Hermannrod. Two years after China brought coronary heart disease under control, new outbreaks appeared in the major cities of Hong Kong, Shanghai and Shenzhen. New closures have been introduced that can already affect extremely vulnerable supply chains.
There is a high chance that China is heading towards a complete lockdown, and it is hard to see how they will get out of it. Omikron spreads like wildfire in dry grass. It’s not very dangerous as people are vaccinated three times with good vaccines, says Hermannrod, but they are not in China.
Last fall, China’s Evergrande, the world’s largest homebuilder, was experiencing a severe debt crisis. With nearly 3,000 billion NOK in debt and liabilities, many believe the entire company could collapse and drag the rest of the real estate sector with it.
— China’s housing construction has deteriorated. The fourth quarter saw the biggest drop since the turn of the millennium, at 26 percent. With the spread of the coronavirus and the disintegration of globalization, Hermannrod says, in addition, we have three small crises in China.
Chinese authorities indicated earlier this week that they will boost the economy and stock markets, contributing to a historic rally in the stock market after a long period of major declines.
The authorities have made sure to provide more credit, and there is reason to believe that they will now try to speed up the economy again, says Hermannrod.
– negatively affects
The biggest fear in the markets right now is that higher energy prices and higher interest rates will lead to a recession, meaning the economy will shrink.
Growth in the economy must decline, otherwise we will not beat inflation. A month ago, I thought the only way to do that was to raise interest rates a lot, but if high energy prices continue, I think they can do a lot of work. So I’m a little less concerned about inflation, and a little more concerned about stagnation, says Hermannrod.
The sharp rise in prices for gas, electricity, metals and materials provides an entirely new cost picture for businesses. Robert Ness, chief investment officer at Nordea, is excited to see if they can make everything easier for clients.
It refers to the Bloomberg Commodity Index, an index that includes many different commodities, which is up more than 25 percent this year.
– It’s worrying. When you get it, combined with the higher interest rates, you know that messing with people is less. Then they may trade less and then it negatively affects the profits of the companies. After all, 10 percent earnings growth is expected this year, he says.
Næss also points to global logistical issues as a potential challenge. However, he is not too concerned about the markets.
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