Bob Homan: Knowing what you are getting
Bob Homan: Knowing what you are getting
This column was originally written in Dutch. This is an English translation.
By Bob Homan, Head of ING Investment Office
Despite what economic laws, the reshoring of high-tech production not only leads to problems, but also to surprising investment opportunities.
In addition to the rise of AI and the development of interest rates, deglobalization is currently the most discussed theme in the world of financial markets. AI is seen as an opportunity and deglobalization as a threat. Personally, I think that the impact of deglobalization on the financial markets is ultimately not too bad.
Reshoring leads to higher interest rates and higher growth
Let's look at the macro level first. This mainly concerns the highest technology that governments no longer want to be shared with everyone (read: the Chinese). This, and the perceived vulnerability of supply chains, leads to reshoring, bringing certain production back home, for example semiconductor production. The investments involved lead to additional demand for capital and therefore to higher interest rates. But at the same time, this also ensures additional economic growth.
Nothing will probably change in the meantime for the home, garden and kitchen items you buy via Alibaba or Temu. No trading bloc has an interest in erecting barriers to this. The car industry can be a kind of intermediate category: there is trade, but high rates.
Inflation risk appears to be low with high-tech reshoring
In theory, reshoring should lead to additional inflation. After all, products are no longer made in the cheapest place. I think this effect will not be too bad. High-tech products in particular have a tendency to become cheaper due to continuous developments. The speed of development may slow down slightly, but I doubt whether that will really lead to more inflation.
Every trading bloc is looking for growth in the high-tech sector
Then on a micro level. Trading blocs are looking for economic growth in high-tech sectors. The market for such products is growing rapidly and if a country disappears as a sales market, this can easily be compensated by growth in the home market. Moreover, competition from other blocks also disappears. This argument applies to a lesser extent to the car industry, should a trade war really arise in that area.
What does all this mean for the financial markets? At a macro level we see more investments, higher interest rates and therefore a less favorable environment for bonds. At the same time, higher economic growth is positive for profit growth for companies and (therefore) shares. When investing, it is important to keep an eye on the international spread with the reshoring trend. Many investors still look exclusively to the US for technology shares. Right now, opportunities are also arising in the other blocks.