Investing in the Path of Progress

© Can Stock Photo / irynarasko

The economic history of the past 2,000 years begins with little change for many centuries. Then, in the 17th century, things began to change—a lot.

Energy progressed from waterwheels and windmills to steam engines, electrification, and the fossil fuel economy. Each revolution brought lower prices, wider adoption, and increases in human productivity, incomes and wealth.

Energy powered the factory system, in which standardized parts enabled output to skyrocket compared to the age of one-at-a-time production by artisans making custom articles. One may have romantic notions about the age of the artisan, but far more people could afford shoes when they came out of a factory.

And that was just the beginning of the modern world, with its incredible increase in living standards and lifespans.


Country by country, the pattern is rising urbanization and the decline of subsistence agriculture as economies modernize. It happened first in Europe and America. China is well along this path. The effect on incomes and economic growth is nothing short of astonishing, as you can see on the chart.

As investors, we see what may be a compelling opportunity from two current trends coming together. The next energy revolution, built on solar technology and battery storage, will enable vast parts of the developing world to modernize more quickly. Just as some places skipped the copper-wire age of telephones and built cell towers, in the years ahead some areas will skip the age of fossil fuels for electricity as solar power gains the economies of scale.

The most populous democracy in the world, India, is at an early stage of the trend to urbanization and modernity. Two thirds of the people live in rural areas; many are still engaged in subsistence farming. With a culture that values literacy and education, India is poised for growth and progress. Some believe that India is where China was twenty or thirty years ago—before decades of rapid economic growth. Add the next energy revolution to the mix, and you can see that exciting times may lie ahead.

The economy of India already includes some global companies, and many more publicly owned companies producing goods for the local market and nearby neighbors. By our standards, it is investable: money can be effectively invested with a reasonable expectation of gains. The India exposures we are putting in place are traded on the New York Stock Exchange, and priced in US dollars.

Of course, the future is uncertain, and there are no guarantees. As with all long-term investments, prices may be volatile. Clients, if you would like to discuss how a small India allocation might affect your portfolio, please call us or send email.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

Investing involves risk, including possible loss of principal.

The China Syndrome

© Can Stock Photo Inc. / rfx

In today’s increasingly globalized world, actions can have far-reaching economic consequences.

Take, for example, China. If you pay attention to business news you will probably hear a lot about China; as the second largest economy in the world, this should not be surprising. China is a major importer of raw materials such as oil and metals, so any signs of the Chinese economy slowing down tend to be met with alarm and panic in the markets.

These raw material imports have fueled a massive construction boom unprecedented in human history. Over the past 25 years, the percentage of China’s population living in cities has more than doubled. Almost 500 million people have moved from rural China into the cities—that’s the equivalent of the entire metro population of New York City moving into China’s cities every year for the past 25 years. It’s no surprise that the Chinese construction industry has played such a huge part in the world economy.

Some skeptics will argue that this part of China’s role is over and the boom is unsustainable—Chinese construction will level off, China will import fewer materials, and much of the world economy will slow down.

We view this as short-sighted. To put China’s demographic trends in context, China’s level of urbanization is on par with where the United States was at in the 1920s. China’s urbanization is still a century behind ours, and at some point they’ll have to catch up. If China follows the demographic trends of every other modern industrial nation, at some point in the not too distant future another 500 million people will be moving into Chinese cities—and they will still need places to live there.

We may not be sure of the timing. It might take them another 25 years, or it might take them longer or shorter. But the demographic reality is that China’s urbanization is not done, and neither is the construction they need to do to make it happen, or the demand for raw materials to build with. In the big picture, we view concerns of China’s economy slowing down as premature.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.