Real investment alternatives in uncertain times

February 2020 – “Where should I put my capital?” – Many family offices and large and institutional investors are currently asking themselves this question. Nervousness on the stock markets is increasing, and safe havens can only be found in exchange for negative interest rates. As such, investors are focusing more and more on real asset investments – from wind farms to new types of ships. A recent conference in Hamburg, co-organized by Hamburg Commercial Bank, was concerned with precisely these opportunities for equity and debt capital.

The evening event before the actual investment conference got right to the point. “Strategy, Leadership, Uncertainty” was the topic of the lecture by Professor Burkhard Schwenker, Chairman of Roland Berger’s Advisory Council. Whether it’s trade wars, political instability, economic downturn or, above all, the consequences of the corona pandemic, economic decision-making, whether as the manager of a company or a major investor, is not easy in these turbulent times.

Dr. Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, was only able to provide a bit of conditional short-term optimism at the opening day of the Real Asset Investments conference at E.R. Capital Holding on Hamburg’s Außenalster. His conclusion was that globalization, which for many years was a guarantor for the growing together and strengthening of the entire global economy, is currently proving to be its Achilles’ heel in the era of the coronavirus. If production in the Far East largely comes to a standstill, this will have consequences not only for China, but also for the rest of the world. Just how dependent the global economy and thus also the German economy is on a prospering Chinese economy is shown by these figures from de la Rubia: China alone has been responsible for 30 to 40 percent of global economic growth in recent years. In 2019, China’s contribution to global economic growth was a whopping 39.2 percent. Dependency on the Chinese market, whether as a sales or production location, is currently much higher than at the time of the SARS virus in 2002/2003. German automotive and mechanical engineering companies in particular and their suppliers are currently feeling this massively.

Rapid recovery is not unlikely

Conversely – and this is the good news – according to Hamburg Commercial Bank’s Chief Economist, this also means: “World trade will recover when the situation in China normalizes once again. Before corona, there were initial signs of a revival in the global economy. This could be taken up if the situation in China quickly normalizes again.” Indeed, the latest news from China is that the number of infections there, where the pandemic originated, is significantly decreasing. This is grounds for cautious optimism in the medium term.

Investors were already changing their behavior before the outbreak of the coronavirus. Together with Dr. Anton Buchhart, Head of Capital Investments at Barmenia Versicherungsgruppe, and Tilo Kraus, Head of Global Sales and Syndicate at Hamburg Commercial Bank, Thomas Rucker, Managing Partner of Rücker Consulting, discussed investment opportunities in the area of debt capital in real assets. “After years of rising asset prices, there is more focus on defensive asset classes. Defensive real asset investments are becoming increasingly important. They are generally much less susceptible to macroeconomic distortions,” said Tilo Kraus (see interview).

Coronavirus depresses the global economy

Coronavirus depresses the global economy | Percentage change in gross domestic product

Percentage change in gross domestic product | Sources: HCOB Economica, Macrobond, IMF

Shipping has always been an important indicator of the state of the global economy and globalization. Against the backdrop of current challenges, the thesis that Christoph Geck-Schlich, Managing Partner of the Blue Star Group, presented to the participants of the Real Asset Investment Conference was surprising: “Ships are currently experiencing a revival as an asset class.” In its own words, the Blue Star Group makes strategic investments in the maritime economy and logistics. It offers co-investors innovative investment opportunities and holistic asset and portfolio management. Investments in ships in Germany often have to contend with a bad reputation after some failures around the years of the financial crisis, but according to Geck-Schlich, internationally, attitudes have long since changed and the desire to invest has returned – on the part of both project developers and investors. Modern ships are indispensable for functioning international trade, and after the corona pandemic at the latest, they will be more necessary than ever before.

Shipping versus real estate

Shipping versus real estate: Comparison of long-term price development since 1977

Sources: Blue Star Group, Bulwiengesa, Clarksons Research

Shipping is going green

However, the key word is “modern.” New types of goods, but above all innovative, even more environmentally friendly propulsion technologies will revolutionize the shipping industry in the coming years and decades – and thus offer investment opportunities for the construction of new ships. According to calculations by the Blue Star Group, the German fleet’s share of global shipping is currently five percent; for container ships, it is as much as 16 percent. Container ships in particular are the pacemakers of globalization. Their decks carry stacks of ISO-certified containers with higher-quality semi-finished and finished products from smartphones and fashionable sneakers to office chairs.

Four out of five goods are already traded by sea, with this figure set to increase in future. And in spite of all the criticism leveled at old tankers, according to Geck-Schlich, the share of shipping in global carbon dioxide emissions, which are largely responsible for climate change, is only two to three percent. But that’s no reason to sit back and relax. Sustainably oriented investors, but also political regulators, are increasing pressure to introduce more energy-efficient engines and alternative propulsion systems for ships. Dr. Jan-Henrik Hübner, Global Head of Shipping Advisory at the consultancy DNV GL, presented the numerous alternatives to classic diesel in his lecture: from liquid gas to power-to-X technologies, in which synthetic, climate-neutral fuels are produced on the basis of renewable energies such as wind energy and photovoltaics.

Wind power was also the topic of the lecture by Christian Banzer, Managing Director and Member of the Executive Board at Prime Capital AG. After the drastic reduction in feed-in tariffs and citizens’ increasing resistance to new and larger wind turbines, onshore expansion in the former wind energy pioneer of Germany has virtually come to a standstill.

Shipping: berth of a container ship in the port

Power purchase agreements on the rise

In contrast, according to Banzer, the demand for power purchase agreements is increasing: “The interest of large corporations in these long-term purchase agreements is continuously increasing.” Large international companies such as Amazon, Google and Unilever, but also German multinationals such as Daimler-Benz and Deutsche Bahn are guaranteed to secure green electricity from existing wind or solar parks with the help of PPAs – in the long term and reliably. As simple as the construct seems, the funding channels behind it are complicated. Hamburg Commercial Bank’s renewable energy experts are specialists in PPAs.