Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 498

The coming supercycle in tangible assets

This is an edited version of a presentation by Jacob Mitchell, Founder and CIO of Antipodes Partners, at the Pinnacle Insights Live 2023 event.

We've been observing for some time now, and it really started in 2018 with the Trump Tax Cuts: fiscal activism. There's been a real shift in the backdrop. And it was a result, I think, of the failure of QE. QE stimulated asset prices, but it was less than optimal when it came to stimulating the economy. So, it led to very wide wealth differentials, populism, then we had Trump, and then we had COVID.

And through all of this, what we saw was the response to every crisis was stimulation on the fiscal channel and also central banks reinforcing that. So, central banks normally act in a countercyclical manner, and they were reinforcing it with procyclical central bank policy. And it really reflects the fact that we think the central banks are increasingly captive to their political masters. We've really gone down the pathway of losing central bank independence. 

Out of this, you'll start to see policy-led winners - that increasingly fiscal stimulus will start to go towards decarbonization, towards onshoring, and infrastructure projects. We're seeing it, but we're going to see a lot more. Let's unpack what that means for the composition of investment in the economy.

Tangible vs intangible investments

If you go back to 1980, most investments – 70% of investments went into tangible stuff, equipment structures as opposed to intangible, which is software and intellectual property. Fast forward to today and the split is 50-50.

We know why that happened. We had the emergence of the Internet; we had ecommerce, streaming video-on-demand, social media; and we also had things like the digitization of the enterprise, the emergence of the cloud. All of those things – the interesting thing about them is some of them led to productivity growth. Not all of them. I don't think Netflix has improved productivity, but the digitization of the enterprise definitely did.

Now, what we see happening is that's not going to go away, but the step change is going to come in tangible. It is all of the investment we need to solve for climate risk, to solve for geopolitical risk. And we think it will end up being more inflationary because it doesn't have a big productivity payoff.

Structurally higher inflation

The inflation backdrop - we think pressures are there; structural pressures are there. You have this fiscal activism, you have the wage pressure, which is a combination of the participation rate having fallen through COVID in the U.S. and in the U.K. We also have a big skills mismatch and part of that mismatch is really the change. And when you change the investment in the economy in a major way, you don't necessarily just all of a sudden get the skills that you need to take that tangible investment forward. You need electrical engineers, because it actually is just a super-cycle in investment in the power sector. Those skill shortages are real. The Fed is very concerned about the level of wage growth in the U.S. economy, and that's why it's been tightening.

Then you have China. China is no longer a low-cost manufacturing hub. We have the aging population in the West. We're losing workers, but we still have to take care of our elderly folk.

We have AI. AI, machine learning, certainly will start to deflate some of the service sector. AI will be very powerful actually in removing some of the most expensive jobs from the economy. But that is a longer-term trend, and it won't necessarily fix the issue that Fed has in the medium term.

We've seen this story before

Have we seen this playbook before of fiscal policy being much more active, of central banks having to try and deal with governments and their policies, which ultimately reflected a much more volatile nominal GDP growth era? And we have.

It was the 70s and the 80s. Nominal GDP growth went through these big swings. And we know equity markets don't like volatility. It drives up the discount rate and it results in lower multiples, and that's what we saw in that period. The average multiple on the U.S. market on a cyclically-adjusted CAPE basis was around 11 times versus where we are today at 30 times. We think there is a real risk of volatility in the economic cycle, and it's already starting. You can see that leads to a derating.

What you're seeing with the euphemistically-described Inflation Reduction Act in the U.S., which should be more accurately titled the inflation reacceleration act, is US$400 billion of investment targeting the energy transition. And we say $400 billion, but actually no one really knows, because it's open-ended. It's actually production credits; it's investment credits; it's manufacturing credits; and there's no cap. And renewables are already competitive in Midwest of the U.S.; they're very competitive in the sunny parts, the windy parts of the U.S.

You don't need these incentives to encourage utilities to invest. It's actually happening anyway. So, it will really accelerate the market opportunity.

A large cap stock to play the theme

Siemens Energy: we describe it as the Swiss Army knife of decarbonization. It's a leading manufacturer of wind turbines and a leading manufacturer of high-voltage transmission equipment. It also solves for hydrogen. And look, this investment cycle is genuinely structural. Even if you just take the reality of having to decarbonizing the existing power grid, if you want to remove hydrocarbons, we need to resize the power grid by 3X. It's very hard for investors to get their heads around that number, and that's why we think this is a great opportunity to buy. You don't need to go onto the lunatic fringe. You can buy very sensible companies run by sensible people on sensible multiples because they were perceived to be cyclical companies that are transitioning to a structural growth profile.

In summary, we need to position for a real change in regime: fiscal activism and a super cycle in tangible investment. We need to be selective around yesterday's winners. We really should be focusing on tomorrow's and take advantage of the current valuation divide in markets. There are some very attractive choices. And as always, a pragmatic value approach in this environment is about finding resilient businesses that offer us a margin of safety and are really well-placed to deal with this economic volatility and looking for opportunities to protect our investors via hedging out tail risks when we see that sort of risk when it's very cheap to do that.

 

Jacob Mitchell is Founder and Chief Investment Officer of Antipodes Partners, part of the Pinnacle Group, a sponsor of Firstlinks. This article is an edited transcript of a February 2023 presentation and the general information does not consider the circumstances of any investor.

 

  •   1 March 2023
  • 1
  •      
  •   
banner

Most viewed in recent weeks

Why spending more in early retirement can improve lifetime income

Conventional wisdom encourages retirees to preserve superannuation. But if those likely to qualify for the Age Pension later in life spend a little more today, it may deliver higher lifetime income and a more stable retirement.

Testamentary trusts have secured the CGT exemption

Treasury’s latest CGT reform draft delivers a win for testamentary trusts and deceased estates, exempting estate-derived gains from the 30% floor. However, questions on death and divorce rollovers remain unresolved.

Meg on SMSFs: What do we think about reversionary pensions these days?

Reversionary pensions have long been a staple of SMSF estate planning, but are they still the best option? Meg Heffron revisits a once-clear favourite and asks whether changing super rules have shifted the balance.

Is it time to bail on Australian stocks?

For generations, Australian investors have backed banks, miners and dividends. But has that loyalty come at a cost? A look at the numbers raises an uncomfortable question about where future returns will come from.

How does the 4% rule stack up?

The 4% rule has long been retirement's gold standard. But after a difficult period for investors, fresh analysis suggests a more conservative approach may significantly improve the chances of making savings last.

Testamentary trusts survived the trust tax. The drafting battle has just begun.

The fight over testamentary trusts looked settled. Then the draft legislation arrived. Hidden in a technical detail is a question that could force many families to rethink wills they thought were already future-proof.

Latest Updates

Planning

How the typical Australian Family could save $844,350 in taxes

The value of a testamentary trust is not determined by wealth alone. Depending on circumstances, it can reduce the tax burden on inherited income, create efficiencies and help build intergenerational wealth.

Superannuation

There's a reason why your super is locked up until your 60s

For decades, it seemed settled. Then one controversial idea reignited a debate that could reshape the financial future of millions. The real question isn’t who’s right or wrong, but whether a long-held assumption deserves another look.

Property

The housing slide could become a crash

House prices are sliding across Australia, yet the most dangerous ingredient for a housing crash is still missing. If job losses surge amid growing economic risks, today's correction could become a historic property downturn.

Retirement

Under-retiring: The greatest retirement risk in a generation

Two retirees. Similar savings. Completely different lives. New research from Challenger reveals why some Australians confidently spend in retirement while others hold back and the overlooked factor shaping retirement decisions.

Five risks to watch in markets

Things you may often hear are: a recession is around the corner, markets are overpriced, the AI sector is about to flop at any moment. It’s like the never-ending laundry pile that sits in my house, it never really disappears.

Investment strategies

Do you qualify as ‘rich’?

What does it mean to be 'rich'? For something so universally desired, it is surprisingly difficult to define. That ambiguity creates a challenge for investors and raises a bigger question about what financial success really looks like.

Investment strategies

If you’re worried about your bond portfolio, you’re missing the point

Most investors think they know what bonds are for. But when markets turn volatile, a surprising misunderstanding can lead to costly decisions. Here’s the overlooked lesson that could change how you view your portfolio.

Alliances

  • ASA-Logo-RGB-ActiveGreen-web.png

© 2026 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.