Opportunities on the Horizon: Investing Through a Slowing Economy

Thematic updates | WEALTH OUTLOOK 2023 | MID-YEAR EDITION | 47 FIGURE 3 : Chinese Imports of Semiconductors from the US and the Rest of the World -50 -40 -30 -20 -10 0 10 20 30 40 '17 '18 '19 '20 '21 '22 YTD2023 %YoY Taiwan Korean Japan US Source: Korean International Trade Association (KITA), as of May 2023. Note: YTD2023 includes Jan-Apr 2023. What should investors consider? The evolving relationship between the West and China will cause costs to rise. Shifting G2 tech policies will have significant repercussions for corporate research & development (R&D) spend in China and the US, opening up potential new opportunities for investors. China has seen restricted technology firms rise in market value, just as Western suppliers have seen their share prices rally. While CIG are presently overweight China due to its rapidly improving macroeconomics, the slowing global economy and realignment of the West’s priorities will require even more selectivity in the building of Chinese investment portfolios, now and in the future. The Biden Administration’s new industrial policies directly impact strategically critical sectors like supply-chain technology, smart manufacturing, semiconductor, biotech, green energy, space communications, aerospace technologies and newmaterials. US companies moving operations away fromChina will create new reshoring or “friend shoring” opportunities. Technologies such as robotics and AI and industries that secure critical natural resources allow for greater onshoring and nearshoring. Recent legislation – the Inflation Reduction Act, the Infrastructure and Investment Jobs Act and the CHIPS & Science Act – are all supportive of the development and investment of these technologies. CHIPS & Science, for example, directs $280 billion in spending over the next 10 years across R&D, manufacturing, workforce development and tax credits. As companies look to replicate advanced technologies in North America, the need for robotics and AI technology expands, given that higher labor costs are inevitable with onshoring. US neighbors like Mexico also stand to possibly benefit from nearshoring. The 2020 passage of United States-Mexico-Canada Agreement (USMCA) as well as US policy preferences such as the North American final assembly, all tilt the playing field in favor of Mexico and Canada. Indeed, Mexico is capturing an increasing share of total US trade ( FIGURE 4 ) . Logistics and transportation companies can be attractive investments, as are sectors that benefit from the rise of the Mexican consumer. Financial institutions may also do well as more people in Mexico enter the formal economy.