Hard economic times could lead to a growth in a stock market sector dubbed ‘efficiencies’, according to the investment advisors from BIAS (Cayman) Ltd.
BIAS Chief Operating Officer Robert Pires and CFO Mark Melvin told attendees of the company’s recent quarterly market briefing luncheon about the investment strategies the company was pursuing.
‘Looking at what’s been happening and what needs to happen, we have identified a number of recovery themes,’ said Mr. Melvin.
‘For one, massive new government spending, which may reach close to $1,892 billion globally, will be going to areas such as infrastructure, alternative energy and education,’ he said.
He noted certain infrastructure sectors, like water and energy services, pipelines and commodities can remain relatively immune to the market downturns because they are always needed.
Mr. Melvin said governments hope that such spending would put millions back to work and kick-start the global economy, with the US and China as the biggest players.
The presenters also predicted major investment and government funding for supposedly greener energy sources like nuclear, clean coal, natural gas, and hydro-electric, along with new technologies like wind, solar, and wave technologies.
Mr. Pires said he also believed the downturn meant the growth of another sector dubbed ‘efficiencies’, areas which consumers and businesses turn to in tough times.
‘Efficiencies include certain types of technology, for example upgrading software rather than hardware,’ said Mr Pires.
He said that tough times meant consumers and businesses are retrenching by saving more and spending less.
‘Less demand means reduced earnings for companies, who in turn are cutting debt, laying off staff, and streamlining,’ he said.
Outsourcing, choosing generic products over branded items, and consolidation of firms all fall under these efficiency measures, which as a sector is expected to keep growing.
But the presenters pointed out that restructuring also goes hand-in-hand with growth in education and training, as companies try to get more out of their workers, and unemployed workers seek out new careers. In a tougher job market, greater credentials will be required.
With $100 billion allocated under the Obama plan towards education, student loans will be more available, and while students drive the demand for learning, private education providers are likely to benefit.
‘As a global theme, building intellectual capital is an employment boost on one hand through more teacher training,’ said Mr. Melvin. ‘But also, displaced workers need retraining, for example, those who have been affected by what’s been going on within the US auto industry. And those on unemployment will be encouraged to go back to school,’ he said.
However, Mr. Pires cautioned there will likely be some speed bumps along the road to recovery.
A trend towards protectionism such as the ‘Buy America’ campaign would mean a reduction in free trade in a world now reliant on globalization, and would also have an impact on outsourcing.
‘Furthermore, big government means increased regulation, and it can also mean in some cases the stifling of innovation if bureaucracy becomes too cumbersome.’