‘Strategically important sectors receive structural support, and that's interesting for investors'
The European Union's push for more strategic independence is not disguised common protectionism, according to Jürgen Verschaeve, Chief Investment Officer, and Jeroen Van Boeckel, Investment Strategist at KBC Asset Management. 'If it was a purely political narrative, the focus would be on bringing back industrial sectors with high employment.'
We live in a multipolar world. This brings many challenges, but certainly also opportunities. Structural trends have a significant impact in the medium to long term.
Jeroen Van Boeckel, Investment Strategist at KBC Asset Management
In 2016, China's Midea acquired the German robot manufacturer Kuka for 4.5 billion euros. This caused a stir at the time because it involved so-called ‘strategic technology’. 'I am sure Germany would not allow that sale today,' says Verschaeve.
It illustrates how much the importance of strategic independence has increased. There are good reasons for this: think of the Covid pandemic, for example, which exposed the vulnerability of global supply chains, or the excessive dependence on Russian gas at the outbreak of the war in Ukraine.
Open strategic independence
Globalisation is still a reality, but is perhaps not so unfettered as it was, say, 15 years ago. 'A major effect of globalisation is that it has made production chains cheaper,' says Verschaeve. 'The higher cost of securing or moving production back to the home market in view of national strategic interests has a negative impact on global economic growth.'
The EU is aiming for what it calls open strategic independence. 'Obviously, it makes little sense to seek greater autonomy for non-strategic products such as toys or clothing,' Van Boeckel argues. 'It’s about identifying strategic sectors such as renewable energy and technology, keeping and protecting R&D activities here and, if possible, also strengthening local production capacity. Decisive for the EU's success will be how well it is able to maintain a balance between open and strategically independence. Basically, everything comes down to creating a reciprocal dependence.'
Nobody wants a trade war
The toolbox available to policymakers includes import tariffs that can make it more advantageous for companies to produce locally again, but this policy is also not without risk. 'Nobody benefits if it leads to a trade war. 'Measures should be limited to creating a level playing field, not encroaching on it,' Van Boeckel argues.
The European Union must continue to proclaim the benefits of free trade outside the EU, but without being naive.
Jürgen Verschaeve, chief investment officer KBC Asset Management
The EU owes much of its prosperity to its single market, in which trade barriers between Member States have been removed. 'The European Union should continue to proclaim the benefits of free trade outside the EU, but without being naive,' Verschaeve says. 'If the US and China engage in protectionism but the EU does not, it becomes a victim of its own principles. A possible solution? Use regulations to impose high quality standards for foreign products, thus automatically creating a kind of barrier.'
Research and development
The EU has ambitious plans for greater independence in strategic sectors, as evidenced by the recently drafted guidelines in the Chips Act and the Data Act. Are these primarily designed to give a helping hand to their own industry, or to secure key knowledge? The latter, Verschaeve thinks. 'The focus is mainly on research and development, for example in pharma, green technology and artificial intelligence. If it was a purely political narrative, the focus would be on bringing back employment-rich industrial sectors.'
'Investing in R&D and technological innovation helps to drive down the price tag. Robotics and automation are good examples. One robot can replace a hundred workers, and in hyper-modern car factories, you will find far fewer people today than in the past. Stimulating strategic sectors in this way may be negative for old employment, but at the same time creates opportunities for other skills in the labour market,' says Van Boeckel.'
It’s also about finding the niches,' Verschaeve adds. 'Marine engineering or biopharma definitely warrant a Made in Europe label.'
What the EU is not helping with is in removing internal tensions between Member States. Other power blocs may try to exploit this. 'In a unified Europe, it should not matter if France benefits from a measure at the expense of Germany. But in practice, of course, it doesn’t work like that,' says Verschaeve. 'German Chancellor Olaf Schulz is not visiting Beijing to defend European interests there, but rather German ones.'
Strategically important sectors warrant investors' attention. When something is set in motion structurally as a matter of policy, it is not easily reversed.
Jeroen Van Boeckel, Investment Strategist at KBC Asset Management
'We live in a multipolar world. 'This brings a lot of challenges, but definitely opportunities as well,' he adds.
'As an asset manager, we make decisions based on economic logic, but of course geopolitics also plays a role,' says Van Boeckel. 'Structural trends have a significant medium- to long-term impact. Strategically important sectors therefore warrant investors' attention. When something is set in motion structurally as a matter of policy, it is not easily reversed. For a chip manufacturer or a wind energy company, for example, EU subsidies to produce within the Union form an additional source of income, and investors can therefore also benefit from this.'
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This article is purely informative and should not be considered investment advice.
