Home / Analysis / Ausbil charts a ‘materially different’ investment environment

The environment we’re heading into is one where economies will have more redundancies built into them so they can withstand exogenous geopolitical shocks, according to Ausbil.

Over the last 40 odd years, the story of markets has been one of asset price growth underpinned by low interest rates and the free flow of goods and people between countries against a (relatively) harmonious geopolitical backdrop.

But there’s a new story being written, according to Ausbil, and it’s going to be radically different to the one everybody’s used to reading.

“We had the Ukraine War, we had the pandemic, we had Trump imposing tariffs in China,” Jim Chronis, Ausbil chief economist, told The Inside Network’s Investment Leaders Forum in Queenstown, New Zealand. “These are all factors which, in my mind, are telling me the environment we’re going into in the next 30 years is materially different to what we came from in the last 30 years.

“It’s an environment that will be commodity intensive – there will be cycles in commodity markets – but that will put a floor under growth in the advanced economies.”

The energy transition begets the need for energy independence, with economies having built in redundancies rather than a dependence on the lowest cost suppliers. Meanwhile, defence spending is rising rapidly, with even historically pacifist countries joining in.

“It’s a complete reversal of what happened under George Bush senior in 1990 with the fall of the Berlin War; an emphasis on accessing supply and where you get that supply; reshoring, and a move away from ‘just-in-time’ to ‘just-in-case’… and the pace of globalisation will be reassessed; trading agreements will be reassessed; friends are now foes, and I’m talking about to the north. You need to build capacity that you’ve lost.”

In Australia, non-mining business investment is below long term averages, and government will need to be more willing to underpin growth with stimulatory fiscal policy; the ”right view” if you take the perspective that a self-sufficient, independent economy is a good thing.

“(The private sector) needs to be pushed along by the public sector… If you look at that through the lens of pure free markets, you’d say it doesn’t make much sense. But if you look at it through the eyes of a defence analyst, making sure your economy has sufficient redundancy built into it, you’re making sure your economy can withstand shocks. That’s the environment we’re heading into, and industrial policy at this level is paramount.”