For this week’s newsletter, our topics include recent developments in global financial markets, great power competition, technology, and global migration. First, we look at some interesting news in the world of investing, from infrastructure, commodities, and foreign securities. Then, we examine the emerging Russia-China-Iran relationship in the light of China’s economic slowdown. We then move to a discussion of the benefits and perils of technology, as well as the role that innovation plays in great power competition. To end this week, we investigate the relationship between migration, economics, and politics.

Infrastructure, Commodities, and a New Investment Landscape

As markets soar, should investors look beyond America?

The Economist 

Infrastructure: from investment backwater to a $1tn asset class

Antoine Gara, Financial Times

Goldman Says Commodities to Gain as Central Banks Cut Rates

Yongchang Chin, Bloomberg

This week, there are three areas that warrant closer examination for investors: foreign value stocks, infrastructure, and commodities. American stock prices are high, especially for AI-charged tech companies, and some investors are worried about a potential crash. However, value investing, which focuses on stocks with low prices relative to their earnings (and have also underperformed the broader market over the last decade), might be more attractive outside the US. In many countries – developed and emerging markets alike, stocks are cheaper relative to their earnings compared to the US, even though these companies make a significant portion of their earnings from overseas. This suggests that stocks outside the US, long thought of as uncompetitive compared to their American peers, may be undervalued and poised for a rise in the near future. Another sector currently receiving attention is the infrastructure investment market, which has boomed in recent years, driven by low interest rates (before the post-pandemic rate hikes) and a growing need for investment in areas like renewable energy and digital needs. However, the industry is facing some challenges, including high interest rates, a large number of deals done at high prices, and potential for blow-ups in areas like data centers (which are currently being ‘hyperscaled’ by tech giants such as Microsoft, Apple, and others). Despite these challenges, some experts believe that the infrastructure boom has a lot of room to grow, as there is a trillions-of-dollars need for investment in infrastructure upgrades. Infrastructure assets have become a focus for pension funds seeking good yields and hedging against market volatility, and assets under management have reached over $1 trillion – over six times their level in 2008.

Goldman Sachs predicts a 15% rise in commodity prices this year due to lower interest rates, a recovering global economy, and ongoing geopolitical tensions.They expect copper, aluminum, gold, and oil to increase, but advise selective investment as gains won’t be uniform. This bullish outlook aligns with others who see tighter supplies and economic growth driving a commodity upswing. Goldman’s specific forecasts include copper at $10,000, aluminum at $2,600, and gold reaching a record high of $2,300 per ounce. However, they remain cautious on battery metals like nickel and lithium, believing their bear markets haven’t ended. Despite the Federal Reserve leaving rates unchanged recently, their plan for three rate cuts this year and upcoming inflation data will likely influence commodity prices in the coming months.

Russia, Iran, and China’s Rising Alliance

How China, Russia, and Iran are forging closer ties

The Economist

China’s Economic Collision Course

Daniel H. Rosen and Logan Wright, Foreign Affairs

Putin and Raisi, leaders of Russia and Iran respectively, recently met in the Kremlin to discuss the war in Gaza. Historically, their two nations, as well as China, were not close, often meddling in each other’s affairs and competing for trade routes. However, recent American actions including sanctions on Iran and Russia have pushed them closer together. They now aim to support a multipolar world not dominated by America.China has pledged a “no limits” partnership with Russia and signed a 25-year strategic agreement with Iran in 2021. Bilateral trade is growing and plans for tariff-free blocs, new payment systems, and trade routes bypassing Western-controlled areas are underway, raising concerns for America and its allies. Despite the increase in commodity trade between the three countries, forging deeper ties may prove to be challenging. Iran and Russia lack common banking channels and payment systems, hindering investment and broader economic cooperation. China’s involvement in Russian projects remains limited, and competition between China and Iran in certain markets exists, particularly in higher-value exports.

China may increasingly seek such partnerships due to its recent economic struggles. GDP growth has fallen from an average of 7.7% (2010-2019) to 3-4% currently. This is attributed to a drop in property construction and strict “zero COVID” policies, hindering private-sector investment. Despite the need to shift to a consumption-led model, Chinese companies are exporting excess production due to weak domestic demand. The recent National People’s Congress (NPC) did little to ease concerns, as Beijing prioritized sustaining support for export-driven industries over reforms. This worries major economies like the US, EU, and Japan, fearing China may export its way out of the slowdown, potentially leading to trade conflicts and threats to Western firms and workers.

Innovation and the Future of Power

The Promise and Perils of Big Tech

World Politics Review

Big Tech’s Latest Obsession Is Finding Enough Energy

Katherine Blunt & Jennifer Hiller, The Wall Street Journal

Eric Schmidt: Why Technology Will Define the Future of Geopolitics

Eric Schmidt, Foreign Affairs

Technology offers great potential to improve lives but also carries significant risks.From the digital divide excluding large populations to the weaponization of data and Artificial Intelligence (AI), the potential for misuse is high, especially under authoritarian regimes. The race to certain technologies that may be applicable in warfare is intensifying competition between the US and China. Even promising technologies like drones raise concerns due to their use in warfare and potential for autonomous weapons. As our reliance on digital networks grows, so do cyber threats from both state actors and criminals. Of particular concern is the rapid development of AI, which is causing a major headache for the energy sector. The massive amount of electricity needed for data centers that power AI threatens to strain the power grid and slow the switch to clean energy sources. Utilities are having trouble keeping up with the surging demand for electricity, and while they want to rely more on clean energy, building new sources like wind and solar takes too long. As a result, companies are looking to traditional energy sources to meet the demand in the short term, which creates a conflict with their clean energy goals.

In the geopolitical arena, technology serves as a front in the rivalry between the US and China. In this competition, many experts say that innovation is the key. The US currently leads (and has been in a commanding position since World War II) but risks falling behind due to a decline in government funding for research and development. Historically, collaboration between government, industry, and academia has fueled US innovation, but short-term political cycles and risk aversion are hindering investment in long-term research. While the private sector thrives, it often focuses on commercialization rather than fundamental science. To maintain its edge, the US needs to overcome these obstacles and reignite its culture of innovation by increasing public funding for research in critical technologies. The future of democracy and the global order may depend on it.

Economic Impacts and Political Challenges of Surging Immigration

Immigration to Boost US GDP by $7 Trillion Over Decade, CBO Says

Rich Miller, Bloomberg

Immigration Is Fueling US Economic Growth While Politicians Rage

Augusta Saravia and Enda Curran, Bloomberg

Global Migration Is Not Abating, Neither Is the Backlash Against It

World Politics Review

The surge in immigration is expected to have a profound impact on the US economy, with estimates suggesting a $7 trillion boost to the gross domestic product (GDP) over the next decade. This economic growth is attributed to the expansion of the labor force and increased demand for goods and services. While the federal government stands to benefit from stronger economic growth, with projected revenue increases of about $1 trillion, wage growth is expected to be slower due to the influx of lower-skilled workers. Despite these economic benefits, public opinion remains divided, with many Americans viewing immigration as the most significant problem facing the United States. Wall Street, including investment banks like Goldman Sachs, JPMorgan Chase, and BNP Paribas, have a more optimistic view about the economic impact of immigration, revising up economic growth forecasts due to the boost from new immigrants to the labor force and consumer spending. Economists emphasize the importance of immigration for economic growth and recovery, particularly in the context of the current labor market dynamics and the high number of job openings across various sectors. However, many also caution that immigration is sensitive to policy changes and advise against extrapolating bigger numbers beyond this year, as policy could change after the November election.

In contrast, Europe is facing its own challenges with a recent surge in migration, leading to dangerous and deadly crossings of the Mediterranean Sea and English Channel. This has raised alarm and tensions across the European Union, with far-right populists like Marine Le Pen and Geert Wilders using anti-immigrant sentiment to fuel their electoral ambitions. This narrative has also influenced centrist governments to adopt tough stances on immigration. The global refugee crisis has further complicated efforts to address migration with the United Nations Refugee Agency reporting 108.4 million forcibly displaced people worldwide at the end of 2022, up from 89.3 million in 2021. This increase is largely due to conflicts in Ethiopia and Ukraine. Efforts to address these challenges and craft a global consensus on migration are hindered by demands for quick solutions. Meanwhile, wealthy countries are increasingly pushing refugees and asylum-seekers to await processing in third countries, threatening international humanitarian law.