Market commentary: Sep 2023
Portfolio performance
The biggest question for investors is not how high interest rates will go but how long they will last? The answer depends on inflation - rising oil prices suggest the road to the 2% inflation target will be long. Meanwhile, the so called “Magnificent 7” Tesla, Apple, NVIDIA, Microsoft, Amazon, Meta, and Alphabet, have roared this year on the excitement around artificial intelligence (AI) which has bolstered international equity returns. One commentator published a projection that the global AI market will reach nearly US$2 trillion by 2030! While the growth prospects for the Magnificent 7 may remain strong in future, our fund managers believe there are still many opportunities for companies with attractive fundamentals in other areas.
ESG analysis – water and computer chips
In-depth analysis of Environmental, Social, and Governance (ESG) aspects of companies is critical when making sound investment decisions. This month’s article is a summary of a Capital Group New Perspective Fund research report covering the issue of water usage and computer chip manufacturing.
Background. Computer chips are essential components in computers, smartphones, appliances, and cars (around 3,000 per car!). Demand is expected to grow as the world enters the new, and evermore complex, era of artificial intelligence (AI). Water enters the scene because large amounts of ultra-pure water are required during the wafer manufacturing process to avoid contamination. It may come as a surprise that computer chip manufacturers rank in the top three most water intensive industries.
Water risk. The risk arises as the world is expected to face a global fresh water shortfall of up to 40% by 2030 according to the United Nations as at April 2023. A typical manufacturing facility uses 7-15 million litres of ultra-pure water every day according to Sustainalytics as at March 2017. This is the equivalent daily water usage of around 13,000 households! Intel (most likely powers your computer) and Taiwan Semiconductor Manufacturing Company (TMSC) are the two largest computer chip companies in the world. They feature in the story as they are expanding global operations and building new manufacturing plants in areas including the Southwest United States – a region already under extreme water stress.
Solution. Intel have built a unique water treatment and recycling facility at their plant in Arizona that allows the company to treat nearly 34 million litres of water every day which it can reuse. Similarly, TSMC expects its new computer chip plant (also in Arizona) to achieve close to a 90% water recycling rate.
I’m always impressed by the depth of research undertaken by our fund managers. It’s also fascinating to see what some companies are doing to make better use of scarce resources and that this ticks the profit sustainability box as well as good stewardship of the environment.
The world clearly needs more of this!Richard Grimes, CERTIFIED FINANCIAL PLANNER (CFPCM), Director and Financial Adviser