Industry Voice: Investment themes for a World of Growing Interstate Competition

The world is entering a new period of geopolitical uncertainty and growing inter-state competition. Countries are spending growing amounts to secure their position in this more uncertain world, from dominance in space to security across clean energy supply chains.

Leadership in space technology is increasingly viewed as a strategic priority. The US refers to advantage in space as “the new high ground.”^[1] Meanwhile, China has stated its intention to become a “space power”. President Xi Jinping has declared that China’s ‘Space Dream’ is to take the place as the world’s leading space power by 2045.^[2]

As a result, there is a new space race among the world’s big three major spacefaring nations: US, China and Russia. As Tim Marshall notes in The Future of Geography: How Power and Politics in Space Will Change the World: “The militaries of each have a version of a ‘Space Force’ that provides war-fighting capabilities for their forces on land, sea and in the air. All are increasing their capacity to attack and defend satellites that provide those capabilities.”

But whereas the space race in the USA/USSR Cold War was defined by government agencies, space today is increasingly commercialized. In the 1960s government spending represented around 100% of all space spending in the US, today it only accounts for 20%.^[3] As a result, we see more private sector firms partnering with NASA to help develop the space capabilities of the US, making the space economy an investible area.

Procure Space UCITS ETF (YODA) provides access to this theme, focussing on companies that derive significant revenue from pure-play space exposure including satellite technologies, space technology and hardware, rocket and satellite manufacturing and operation, and telecommunications, among others.

In a world of greater inter-state competition, countries are also having to reassess their energy policies. Russia’s invasion of Ukraine in 2022 exposed Europe’s vulnerability when it came to energy imports. For example, REPowerEU is the European Commission’s plan to move Europe towards greater renewable energy use and make Europe independent from Russian fossil fuels well before 2030.^[4]

But the push toward renewables has also opened up new geopolitical risks. Over the past two decades China has achieved a dominance of renewable energy inputs and manufacturing. While this has led to cheaper technology, it is increasingly seen as a new potential vulnerability. This was noted in a new paper by Inevitable Policy Response titled ‘Race to the top on clean energy- the US and EU response to China’s dominance’.^[5] The authors argue: “The EU and US…have awakened to their inadequate position in clean technology manufacturing and raw material processing, a situation which hampers climate goals, threatens the economy, and even presents societal risks.”

As a result, both the EU and US have launched their own industrial policies to increase their own domestic green tech industries, whether it’s the EU Green Deal Industrial Plan or the US’ landmark Inflation Reduction Act. Both provide generous subsidies to clean energy firms, creating investment opportunities in clean energy.^[6]

HANetf S&P Global Clean Energy Select HANzero UCITS ETF (ZERO provides pure-play exposure to clean energy. The ETF tracks the S&P Global Clean Energy Select Index, providing pure-play exposure to companies across biofuel, fuel cell technology, geothermal energy, hydroelectricity, solar, and wind.

Alternately, some investors may want to consider a pureplay solar approach. The Solar Energy UCITS ETF (TANN) is focused on focused on companies that derive significant revenue from solar energy-related business operation.

This energy transition is underpinned by several critical materials. Renewable energy generation makes use of rare earths and silver. Energy transmission relies on copper. Storage relies on lithium, nickel, manganese, cobalt and graphite.

Securing a ready supply that is not exposed to geopolitical shifts has become a high priority for governments. Reflecting this, EU Commission President Ursula von der Leyen recently emphasised Europe’s need to identify strategic projects across the clean energy supply chain – from extraction to recycling, with the goal to “avoid becoming dependent again, as [Europe] did with oil and gas.”^[7]

Other countries such as the USA, Japan or South Korea are all deploying sizable support and investments to less their dependence on critical material imports from China, in what is described as a “global race” of recycling of critical raw materials.^[8]  Sprott Energy Transition Materials UCITS ETF (SETM) provides exposure to the mining companies that are providing the in-demand critical materials.

As the world a shift away from the post-Cold War era, towards one of greater inter-state competition, governments are rethinking their vulnerabilities across the board. This new world creates new investment opportunities, be it in clean energy, critical materials or the space economy.

This new world creates new investment opportunities, be it in clean energy, critical materials or the space economy. Discover how you can invest in the themes that will shape the world of tomorrow.

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