Horizons newsletter – Week 19 // 2017

Horizons newsletter – Week 19 // 2017

Horizons is a bi-monthly Dasym Research initiative to show you how the Dasym themes have been in the news. We publish the Horizons on our website and as an email newsletter. If you wish to receive the email, please contact Investor Relations.
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Technology and shifting consumer expenditures
IT has much in common with railways, electricity and automobiles. In his bookFrom Luxury to Necessity’, Sjoerd Bakker* shows how technological revolution led to new consumer practices and dramatic shifts in consumer expenditure. Consider the automobile: owning a car accounts for 16% of U.S. household budget. However, the car enabled consumers to move to the suburbs (19% of household budget), buy groceries (14%) and clothing (3.4%) elsewhere and develop new forms of leisure (5.3%). The indirect effect of the car thus accounts for approximately 42% of household budget: almost three times more valuable than car ownership. Similar logic can be applied to IT. In the U.S. consumer IT constitutes a $416bn market, but online sales of durables ($341bn), electronic services ($192bn), and digital media ($32bn) already form a bigger market, which is bound to increase further. Moreover, IT is much cheaper to acquire than cars and – as a result – the multiplier from direct to indirect value is bound to become much higher with the ongoing digitization of consumption.

*Sjoerd Bakker is an independent researcher and consultant at the crossroads of science, technology and society. He wrote the book ‘From Luxury to Necessity’ as an initiative of Dasym’s ongoing research activity to support its investment philosophy. Chief Investment Officer, Peter van Rooyen and Dr. Haroon Sheikh, Dasym’s lead researcher, provided guidance in the writing of the book.

Building the city from scratch
Recently, China unveiled plans for “Xiongan New Area”, a city to be built about 100 km south of Beijing, which has been classified by the government in the same league as the Shenzhen New Economic Zone and the Shanghai Pudong New Area. Its location close to the capital is no coincidence. Xiongan is meant to take over “non-capital” functions to alleviate Beijing, which faces many challenges such as a huge population, massive traffic jams, high pollution and dropping water levels. Built from scratch, Xiongan will be green, innovative and dynamic. Creating smart new cities is a broader practice in emerging markets. Other examples are New Songdo and Suwon in South Korea and Masdar in Abu Dhabi.  Egypt is also planning a new capital to relieve Cairo. In the 20th century, however, planned cities were also pioneered by modernists like Le Corbusier and Oscar Niemeyer, who developed Brasilia. Building for systems rather than for people made these projects unpopular. Central planning and large infrastructure can undermine people’s sense of community. If emerging markets learn from earlier mistakes, the cities of the future will be both smart and livable.

Trade delay, no problem
Global trade is in crisis: last year global trade grew at a slower rate than world GDP for the first time in 15 years, and the impact is felt by a substantial number of multinational companies. Since many economists believe growth and international trade are highly correlated, the global trade slowdown could be problematic. But it’s hard to distinguish cause from effect. New research shows that half of the current ‘trade crisis’ is explained by stagnation in international production fragmentation, suggesting that most low-hanging fruit from freer trade and offshoring production chains has been picked. The other half is explained by shifts in consumer demand (particularly in China) from goods to services, such as education or going to the barber. In contrast to goods, services are often produced in regional value chains and are local by nature, thus contributing less to global trade. Consequently, the increasing consumption of services combined with declining consumption of (internationally produced and assembled) goods, is bringing global trade to a halt. Therefore, part of the current trading crisis is actually due to economic growth.