Jeremy Richardson from the RBC Global Equity team discusses current industry disruption and finding a competitive advantage.
Highlights:
Rising oil prices benefit Canada and leave the US unchanged, while net energy importers like Japan, UK, and Europe face both GDP contraction and inflation risks.
Capital flows reverse unexpectedly, making aggressive geographical allocations risky when conditions change as quickly as the recent North America-to-Europe pivot.
AI adoption continues beneath the headlines
Focusing on underlying industry disruption rather than headline-driven decisions creates sustainable investment opportunities and preserves long-term returns.
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Jeremy Richardson: Hello. This is Jeremy Richardson from the RBC Global Equity team here with another update. Well, the last time we spoke, we were discussing artificial intelligence and, in particular, how a group of companies that were perceived as being somewhat immune from the industry disruption brought by that technology were gaining a lot of investor favour. That seems to be a long time ago now. The news has completely changed with geopolitics making all of the headlines and the impact on the oil price being the thing that seems to be occupying a lot of investors' attention at present.
Looking at the data and estimates of what this could do for GDP and inflation, it really depends upon where you're standing as to what the impact is going to be. US – it's a bit of a wash in terms of GDP because it has all the oil that it needs. Canada actually benefits, but the countries that suffer the most appear to be those net energy importers like Japan, like the UK, like Europe more generally. There they have the worst of both worlds, risk to GDP and upward pressures on inflation because of those higher oil prices.
What a change to what the situation was just a few months ago when there was a wave of capital move from North America over to Europe on the expectation of faster economic growth and improving earnings forecasts because of rearmament spending. A good reminder, I think, for investors to be very careful about swinging for the fence in terms of geographical allocations because of just how fast and how swiftly some of these things can change.
Beneath the surface, though, there continues to be significant industry change. And although AI this quarter doesn't appear to be making the same level of headlines as it did last, we are actually seeing individual companies increasing the rate at which they're adopting artificial intelligence. That is leading to increasing rates of industry change, particularly with respect to considerations around the size of the workforce, the mix of the workforce and where companies are placing new investments.
Now as investors, actually, we embrace that industry change because change creates opportunity. It changes the flavour of competitive advantage and what companies are going to have the right edge in order to be successful in this new world that we're moving towards. As investors, we accept that challenge, we like that challenge. And so by focusing on that industry change rather than making big decisions around geopolitics, we hope to be able to preserve returns for investors over the longer term. I hope that's been of interest and I look forward to catching up with you again soon.
