Thought of the day

US Secretary of State Antony Blinken over the weekend warned China’s top diplomat Wang Yi against providing weapons to support Russia’s invasion of Ukraine. The Financial Times reported on Monday that US President Joe Biden was in Ukraine to support his Ukrainian counterpart Volodymyr Zelenskyy. According to press reports, the White House is also readying new export controls and sanctions on key Russian industries.

Adding to the backdrop of geopolitical tensions, North Korea launched two more ballistic missiles off its east coast on Monday, just two days after it fired one into the sea off Japan’s west coast, as it warned against the increased presence of US forces conducting military drills in the region.

Geopolitical events often only have a short-lived impact on financial markets, but the year-long war in Ukraine continues to have a meaningful and long-term impact on security considerations. Recent headlines underscore the investment implications across energy, food, and technology in the era of security.

Energy. The European ban on Russian refined oil products came into effect earlier this month, prompting Russia to plan to cut oil output by 500,000 barrels per day in March. We continue to believe that lower Russian production will contribute to a tightening oil market, and we hold a positive price outlook for Brent. In addition, the EU’s Green Industrial Plan currently under discussion points to further upside to spending as the energy transition continues. Last year, solar and wind power generated more electricity than gas in the eurozone for the first time in history.

Food. Russia has said it would be “inappropriate” to extend the Black Sea grain deal brokered by the United Nations last year when it expires next month, unless, among several issues, sanctions affecting its agricultural exports are lifted. In addition to uncertainty over the deal, Ukraine’s agricultural production has been severely impacted by the ongoing war. Separately, China’s recovering consumption following the country’s exit from its zero-COVID policy and weather issues in key agriculture producing regions look set to keep food security concerns front and center for governments and international organizations.

Technology. Dutch chipmaking equipment leader ASML last week detailed new intellectual property (IP) theft allegations against a former worker based in China, marking a second security breach the company has linked to China in the past year. The company added that this incident may constitute a breach of export controls that the US, Japan, and the Netherlands reportedly agreed to in January. This underscores the growing need for corporate cybersecurity defenses, in our view, as the current nation-level focus on technological security should prove enduring.

So, as security around energy, food and technology continues to be prioritized by governments and businesses, we see opportunities in commodities, greentech, energy efficiency, agricultural yield, the food revolution, and cybersecurity.