What Happens to Your Money When Trading Empires Crumble

As you know, I’ve been detailing a special series outlining why the path forward could be particularly difficult for investors.

Global trade has unleashed decades of economic prosperity, driving markets and property prices higher for more than three decades.

That’s the condition we’ve all become attuned to, especially here in Australia.

But that era could be about to roll over.

How so?

Well, I’ve been banging on about the demise of global trade for well over a week now. And I’ve also shown you how this has ebbed and flowed for centuries.

But in terms of markets, the fracturing of global trade could be especially bad for investors over the coming years.

One aspect centres on reshoring manufacturing closer to home… This is inefficient and increases the cost of goods, capital, and labour.

It also necessitates massive capex build-outs, trimming corporate profits.

The net impact will be to dampen speculation as expectations of share price growth diminish.

That’s the future awaiting your portfolio as the global economy moves into a phase of deglobalisation.

And as this unfolds, multinationals will have little choice but to invest in inefficient supply routes once governments ramp up hostilities and break ties with major trading partners.

Look around you, it’s already happening.

But we’re still within the slow adjustment phase.

For companies, it’ll soon be a matter of getting in line or facing the consequences.

Those who can adapt and accept the changes will survive. Those who can’t decline.

And what’s true for the corporate is just as relevant for the small-time investor… You and me.

Bottom line: the early 1970’s offers us a clear roadmap of what lies ahead; back then, the unwinding of globalisation was met with rising inflation, a weakened global economy, and high unemployment.

But perhaps this time the consequences will be far worse.

The global economy is now far more reliant on a globalised network of trade; wealthy nations are now far more reliant on poorer economies to make things and supply raw materials.

There will be very few winners if this new economic paradigm plays out.

But COMMODITIES are among the few financial buffers that you can hold for this type of market.

But more specific than that…

As global trade erodes, expect to see far more investment in downstream supply chains.

As you know, China dominates the refining and processing of numerous commodities… Rare Earths, lithium, graphite, steel, cobalt, copper, among many others.

But deglobalisation is already putting pressure on nations, forcing them to source and process their own raw materials.

In many cases, that’s not possible.

The geology gods have decreed that certain regions are endowed with mineral resources suitable for extraction… Australia is fortunate to be one of those.

But digging up those raw materials won’t be enough to achieve the ambitious goal of reshoring manufacturing in a deglobalised world.

Miners will need to invest heavily in downstream capacity. For the moment, Australia remains a minnow on this front.

For example, according to Benchmark Intelligence, the country produced just 1.2% of the world’s refined lithium product in 2022.

That’s despite Australia being the world’s leading producer of raw lithium, accounting for about half of global production, according to ABS figures.

No doubt, deglobalisation presents unique opportunities for commodity-rich nations with the capacity to add value to their feedstock.

But that will require an enormous capital investment, cutting a large slice out of the miners’ far easier-to-achieve upstream profits.

So, how do you invest
against this backdrop?

Is deglobalisation even investable?

Or is this just a lose-lose environment for all?

Given the deteriorating geopolitical climate, I believe CAPEX spending towards traditional manufacturing, with its modern twist, will be a key trend to watch.

So too, the fully integrated mining projects that hold both upstream and downstream capabilities.

No doubt, some junior ASX companies are already incorporating this into their feasibility studies. Yet for most, this remains in the blueprint stage. A pipedream and nothing more than a marketing ploy to gain investor attention.

Here’s the reality: only the biggest miners will be able to afford the enormous Capex required for downstream processing. That is, processing raw ore into refined materials suitable for manufacturers.

And when they move, the capital tremors will be intense.

You could think of it as akin to the Capex buildouts among today’s giant tech companies and their data centres.

But in this coming era, it won’t be the tech firms spending billions; it’ll be governments alongside the world’s largest miners and energy firms.

In many ways, it’s already taking shape, but it’s still early.

As geopolitical friction grows, so too will this investment theme.

In my mind, this is the inevitable outcome if we use historical pretexts alongside what’s happening in the world today.

That’s why I’ve just finished putting together a special report; all the details will be with you in Friday’s edition of Mining Memo, including a presentation on how you can position for this changing market.

Stay tuned!