Thematic investing, or investing based on emerging themes, is fraught with some danger. Many people invest in the latest hot theme and get burned soon enough. Others mindlessly put their money into a company based on a theme without regard to valuation or quality of management – another sure-fire way to end up in the red.
And let’s face it: the future is inherently uncertain. If picking future investment themes was easy, everyone would be sipping piña coladas in Bora Bora. The best investors know this and place their bets according to probabilities. That is, they invest when the odds are in their favour and invest large amounts when those odds offer significant upside with minimal risk.
The question then becomes this: which investment themes might give you the best odds of success over the next decade? It’s a tough question. If there’s one thing for which I have a high degree of conviction, it’s that the world is currently drowning in debt and that debt will need to be cut, one way or another. If that’s right, you’ll want to avoid sectors which have benefited most from the three decade long expansion in credit. The finance sector is an obvious one and the bear market here is likely to last decades. The tech sector is another – think of all the tech start-ups and others which will evaporate when the silly venture capitalists funding them don’t have access to cheap and abundant money. There are many other sectors which will suffer too.
In other words, you’ll probably want investment exposure to themes which may still thrive in a world of shrinking credit. There won’t be many of them but Asia Confidential has a few ideas. Asian outbound tourism has been, and should continue to be, a strong theme which transforms the global tourism sector. Privatisation of state-owned assets appears a sure thing – in the developed world as well as China – given bloated government balance sheets. Acquirers with deep pockets should benefit. Low to mid-end consumption should do well as developed world consumers tighten their belts while Asian ones start to spend more with increased wages. Finally, gold is likely to thrive as the credit boom turns to bust and faith in government policies and currencies is shaken...