Investment Outlook 2016 – Trend 3, Published Sep 8, 2016
This blog is part of Sanctum Wealth Management’s Mid-year Investment Outlook 2016. The Outlook gives us an opportunity to step back and look at the big picture to identify trends that have the potential to affect investment portfolios, both domestically and globally. We’re focused on six key trends and this week’s blog focuses on how some of the large connectivity initiatives globally will help dissolve international borders, paving the way for increased trade.
As recently as a couple of decades ago, the best option available to patients suffering from rare illnesses was to consult the most knowledgeable local practitioner. But today, patients can consult remotely with leading authorities. The unifying thread is connectivity: a trend that has been in motion for many years now.
The printing press advanced knowledge by leaps and bounds. Advances in transportation in the 19th century enabled the best producers in almost every domain to extend their scope. Yet, shipping costs were often prohibitive to source from distant producers. For instance, furniture used to be a local purchase until shipping costs declined.
With each extension of the network – highways, rail, waterways and large ships – transportation costs and duration kept falling, and at each step, production started to concentrate with the ablest producers. Worldwide, competent producers started expanding their global market share at the expense of less efficient, localised and smaller scale producers.
Today, we live in a world where reasonable shipping costs, expansive and efficient global distribution networks and the best value define winners. Time zones are vanishing fast. There was a time when outsourcing to India was considered a challenge due to the time zone differences. Today, the time zone is a competitive advantage, creating 24/7 operating environments. Communication has become instant and cheap. Connectivity is intricately woven into our lives. India’s IT services are a perfect example of the rising connectivity. In a world starved for time, winners are models that save time and money, and provide convenience. In a continuation of this trend, it’s important to note some of the large connectivity initiatives underway globally.
New Silk Road
The New Silk Road, a project spearheaded by China, will connect Europe, Asia and Africa via the land based Silk Road Economic Belt and ocean-going Maritime Silk Road. The project is intended to focus on connectivity and cooperation among countries, primarily China and those in Eurasia.
BCIM Economic Corridor
The project will link Kolkata with Kunming, the capital of China’s Yunnan province, passing through Myanmar and Bangladesh, with Mandalay and Dhaka among the focal points. The focus is on linking provinces and States. The main artery of the 2,800-km, K (Kolkata)-2-K (Kunming) corridor is nearly ready. A stretch of less than 200 kms, from Kalewa to Monywa in Myanmar needs to be upgraded as an all-weather road. The Corridor will provide access to sea for India’s North-Eastern States.
The dream of seamless travel between South-East Asian countries is getting another kick start with a strategic trilateral highway agreement connecting India-Myanmar-Thailand, which is also expected to give a big boost to trade and economy in ASEAN countries. Construction began in 2012 and the length is approximately 1,360 kms.
“We live in a world where reasonable shipping costs, and expansive, efﬁcient global distribution networks deﬁne winners.”
This is a USD 32 bn project to expand capacity with the intention of becoming the busiest airport in the world, handling 220 mn passengers and 12 mn tonnes cargo annually. The airport is expected to be three times larger than Hong Kong and will be able to handle 100 Airbus A380s at a time.
Nicaragua Grand Canal
One of the riskiest projects that may change the world forever, a USD 50 bn project is being envisioned to cut Nicaragua in half, connecting the Atlantic with the Pacific Ocean. The project is intended to directly compete with the Panama Canal, 250 miles south. It is expected to be 173 miles long and has an unexpected sponsor: China. However, this particular project has been slow moving and may remain a vision for some time due to various environmental and political issues.
At the same time, some of the largest digital platforms are building connectivity as they improve transparency in markets and enable millions of small enterprises to leverage their scale, and reach customers and suppliers around the world. Digital platforms are helping small businesses increase their export rates dramatically.
Mid-Year Investment Outlook 2016