- Geopolitical Strategist
United States, Institutional
Change
The views expressed are those of the speaker(s) and are subject to change. Other teams may hold different views and make different investment decisions. For professional/institutional investors only. Your capital may be at risk.
Episode notes
Host Thomas Mucha and Global Industry Analyst Saul Rubin unpack the relationship between geopolitics and energy and industrial infrastructure investment.
3:05 – Adopting a geopolitical perspective
5:50 – China, the “greatest disrupter to the legacy world order”
11:15 – Strategic sectors and industries
15:25 – Investing in the energy transition
20:10 – Electrification of transportation
Transcript
Saul Rubin: The result of what we just talked about and China building itself into this manufacturing powerhouse has been that there has been a willingness to become highly dependent on the Chinese supply chain, and now a growing realization that is no longer tenable. And therefore, there is a growing political imperative to alter the nature of the supply chains that are in place today and build up one's own capabilities.
Thomas Mucha: The last decade was marked by a growing realization of the need to overhaul our energy and industrial infrastructure and to fortify supply chains and, more recently, given rising great-power competition, national defenses. As regular listeners of this podcast know, the next decade will be marked by growing investment in those systems. Now, the amount of capital needed for resilience and efficiency building measures here is truly staggering; it's likely in the trillions of dollars — that's with a T. For policymakers who I spend a lot of time with, this is a logistical and a budgetary quagmire, but for investors, it's a generational opportunity to deliver alpha by providing capital to companies who are today building safer, more durable, and more sustainable systems. So, as your friendly neighborhood geopolitical strategist, I can think of no better topic to kick off season five of WellSaid than this one. Joining me today from London is Wellington Global Industry Analyst Saul Rubin, an expert on the industrial and automotive sectors. He's been researching and investing in these areas for more than 30 years and probably understands more about the coming power and resilience transition than anybody else I know. Saul, thanks for joining us, and welcome to WellSaid.
Saul Rubin: Thank you, Thomas.
Thomas Mucha: Now, Saul, we can't discuss these important topics without first exploring the many underlying geopolitical dynamics. We're recording this conversation just days after the dramatic capture of Venezuelan President Nicolas Maduro by US forces. So, with this more unstable structural picture as the backdrop, let's start with the theme of resilience and specifically the national security concerns that go along with that. So, putting on your investor hat, Saul, what are your views on the revenue streams for defense or dual-use technologies? And how do these factors like export controls, procurement cycles, or national budget allocations shape your views?
Saul Rubin: I think it's fair to say that geopolitics has been less of a factor in the investment world for many, many years until recently. And now I think it's impossible to pursue any sort of investment strategy without understanding what's going on, and the kind of things I know you've been talking about for quite some time now, Thomas. And I think it's not an understatement to suggest that what we're seeing right now is essentially the unraveling of the world order that was created post-World War Two. And the realization is gradual. Oh, like many things, it's gradual and then sudden. And we're seeing both of those things happen in the sense that it's still gradual in places like Europe and the UK, and it's happening very suddenly in the US.
And yes, you could pick probably any day of the last one to two weeks as carrying huge amounts of significance. But, just take two things yesterday, one very prominent and one perhaps less so for people in the States or in other places, but we saw President Trump, of course, state that he wants to see defense spending in the US rise by over 50% in 2027 versus this year. At the same time, here in the UK, you had a very specific moment in Prime Minister's questions in the UK Parliament about whether the pace of spending in the UK was picking up fast enough. I think almost certainly the answer to that is no, but you're going to hear this debate with greater regularity now, not only in the UK, but also across right across Europe. And of course, just thinking of the US military, it is, of course, by far the most powerful military anywhere, and yet it's worth noting, as I was just reading today, that, as a percentage of GDP, the US is now spending the lowest proportion of GDP in the past 60 years. So, you have the greatest military power resting on what is a relatively low level of spend in the US, and just underlines the inadequacy of the spend on defense, especially, in places like the UK and Europe. So, I think we're in the early stages of this, of this process. And this is going to, I think, lead to an enormous amount of investment opportunities over the coming years.
Thomas Mucha: How did you come to this realization, Saul? I mean, you know, as you said, this wasn't the focus for most of your career. What were the factors that really convinced you that we're in a new era?
Saul Rubin: I think it's reasonable to suggest that China is pretty much core to everything we're talking about here. And I know it's very easy to look at what's happened in the US in the very recent past as being hugely disruptive to the world order, but I think it's only fair to suggest that what we're seeing in the US today is actually, to a large extent, a very rational, reasonable response to things that have been occurring further afield for the last 10 to 20 years. That links very, critically to China. And I would, put this in two forms when it comes to China. Number one, again, I think it is fair to suggest that China really has emerged as the greatest disrupter to the legacy world order, as a result of a long-standing policy of very substantial expansion and its military capability and willingness to project power, and, on the other hand, the trade policy that is essentially tantamount to 19th century mercantilism. And the second aspect of China is that, partly as a result of that trade policy and the willingness to incorporate and often improve upon Western technologies, China has built itself into the preeminent manufacturing and logistics powerhouse. And I think it's not unreasonable to say that in that regard, China's capabilities are awesome in the true sense of the word — massive, cheap, and super-efficient — and the world is having to respond to that in many, many different ways.
Thomas Mucha: Yeah, I can concur that the way you've just framed that sits perfectly with the discussions that I have with policymakers — not only in the United States, by the way. This is true with policymakers in the UK, across Europe, especially across Asia. And so, I would agree that the rise of China, not only in a military sense, but especially in this economic sense, China as a pure competitor to the United States in this area has radically shifted the policy backdrop. And I think that's likely to continue for not only quarters or years, but decades to come. I mean, that's the sense that I'm getting from the policymakers.
But, let's move to the rest of the world. How do other regional policies affect your thinking? How are they affecting or reshaping your opportunity sets and the companies that you research? Because, as you say, everyone's trying to respond to this and these structural changes emanating from China.
Saul Rubin: You started by talking about national security and let's continue there to start with. And when we talk about national security, I think we're talking about a very wide arena here. I mean, most obvious is the direct spending on defense, but there's an awful lot more that goes into national security. And I think there's a growing realization of that.And the result of what we just talked about and China building itself into this manufacturing powerhouse has been that there has been a willingness to become highly dependent on the Chinese supply chain, and now a growing realization that is no longer tenable. And therefore, there is a growing political imperative to alter the nature of the supply chains that are in place today and build up one's own capabilities, and make sure that domestic infrastructure is a lot more resilient and secure and no longer dependent on supply chains linked to China. It's going to take a while to build up the defense capabilities, but it's going to take even longer to get this done because that dependance on China has grown to be so enormous. And this will mean capital flows into industrial automation names, for example, for years and years to come as, many countries look to do two things, right? You're going to need to build up your own capabilities, but you can't just do it that way. You are going to have to rely upon others, as well. And if it can't be China that’s supplying you with more efficient manufacturing — or cheaper manufacturing let’s say — then it's going to have to be other countries. And if it's not your own country, then it's going to have to be countries like India, or Mexico, more, perhaps, Central America and South America, depending on where you're located and who you want to be dependent upon. But I think India in particular, for example, is going to emerge as a huge new manufacturing center for many countries that are going to want to be aligned with the US as opposed to being aligned with China.
Thomas Mucha: Saul, the favorite term I hear in Washington is not reshoring, it's “friend-shoring” — relocating these supply chains to countries that are not potential adversaries.
But I'm curious, you know, through your investment lens here, which areas do you think are most likely to benefit from friend-shoring, reshoring, and this localization of supply chains and that you've just painted?
Saul Rubin: So, I think, firstly you're looking to companies that will help in terms of, as I say, industrial automation. And, you know, a lot of these companies today, well, they exist all around the world, but, I mean, there's an incredible preponderance of skills that exist, for example, in Japan. But companies that feed into that supply chain, I think are going to be seeing a lot more demand for many years hence.
But it's not just that. I know we're going to get more into energy infrastructure and power. But building up security on that front is going to be just as essential. And today there's a huge reliance on China when it comes to battery technology, for example, and all kinds of commodities and refining of commodities. And this is going to have to change, and this is going to draw capital into, for example, Korean companies, have very good alternative technology when it comes to batteries. And, you know, I'm sure there are alternatives for other kinds of supply chains as well.
Thomas Mucha: Yeah, what you're saying there, again, comports with what I hear from policymakers. The way I view this is: There are a number of strategic sectors, strategic industries that the policymakers view in this more competitive great-power context, and they're all focused on the industries that they think they need to, quote unquote, win going forward — the semiconductors, artificial intelligence is right up at the top of that list, critical minerals, robotics, automation, energy, renewable energy is a piece of this. So again, I think the structural backdrop here, you know, this focus on industries as part of a national security orientation on the policy side is the biggest shift that we've seen in the market narrative, really in decades. I do want to shift gears a little bit, and I want to dig down into something you said. When it comes to you know, overhauling industrial infrastructure, which subsegments look the most investable to you right now? I mean, what are you really looking at today?
Saul Rubin: There's quite a lot of them but let me just throw out some ideas. Today when you look at critical infrastructure for logistics, and you think about infrastructure that's being built in ports, a lot of this stuff today, again, it's coming from China, and that can no longer happen in the future. So, altering the infrastructure around ports to suppliers that are seen as more friendly is going to be important. Obviously, you're seeing a huge rise in data centers today, and all the infrastructure that's going to be required to go into that. Now, one could argue maybe it's a bit of a bubble emerging on that front, but the reality is the capital will very likely flow into those areas. And the other big area that I think is most obvious is going to be the grid. We are seeing for the first time in a decade or two a true structural increase in demand for power, in particular electric power, right across the world. And that's going to be a greater emphasis on ensuring that those systems are not only resilient, but also secure. And, so, a lot of the electrical equipment names are going to be seen as critical in providing these services. And the other area that's linked into that as well is engineering and construction companies. And, so there are many of those companies right across the West and also in Asia that are going to be called upon in order to allow for the expansion of electrical distribution.
Thomas Mucha: There's a lot for you to be looking at these days, Saul — I hope you're getting enough sleep. I want to dig into what you just said about the power transition and sort of two related questions. So, when you think of energy transition, what are the various pieces of that you sort of take apart through the investment lens? And then, relatedly, to your mind what's likely to drive the most alpha in this area over the next five years? Where are the areas that we should be focusing on?
Saul Rubin: So, let's just talk about the key drivers to power. And I think really we're talking about two aspects of this, and just to emphasize what I said a moment ago, you know, I think it's well known that demand for power is going up today, but I think it's still not quite appreciated how significant a change that is relative to the last 10 to 20 years. I mean, the reality is that power demand in the US and in most of Europe, and the mature economies has flatlined for the best part of 10 to 20 years. And that has led to a massive underinvestment into the resiliency and distribution capabilities of the electric networks.
And so, today, that's changing. Now, I think most would say that you're going to see structural demand growth of, let's say, 2% to 3%. And that could well be an underestimation. So, we're seeing structural growth for the first time in years and in an area which has been beset by underinvestment. So that's an enormous opportunity. And on the second side, when it comes to power generation, the reality is, there’s going to be the need for access to a diverse range of power-generation capabilities. And yes, I know when you look at what's going on in the US today, it's very easy to suggest that we're seeing a return to oil, but that's not really what we're seeing. I think there is a return to a willingness to utilize oil as a part of the power generation capabilities, but, at the same time, there's also a realization that one has to grow dependance upon ultimately, longer-term, more dependable and safer types of power generation. And so, you're going to continue to see a diverse array of power generation capabilities, whether it's nuclear or solar or wind or whatever it might be — whatever offers the best prospects, the safest prospects, and the cheapest methods of power generation. So, there are a lot of companies that focus on distribution, and then there are others that invest, or will serve, let's say, industrial equipment into the companies that actually generate the power. And we see greater investment opportunities in both those areas.
Thomas Mucha: Yeah, that's a rich infrastructure. I'll just add two other sort of geopolitical national security drivers to what you just mentioned, which is one, you know, the power grids are targets for cyber-attacks in this great-power context. I get a lot of concern from Capitol Hill and elsewhere about the vulnerabilities, particularly in the United States, in these areas. So I think that’s a driver.
And of course, climate change is another massive driver here from the national security lens, which is, I agree, is going to drive even more attention on energy efficiency, emissions reductions globally. So, on that last point, efficiency and emissions reductions, what solutions are most attractive to you right now, Saul? And which ones do you think have staying power over a longer or full market cycle?
Saul Rubin: I think the obvious one is the area of cooling systems, temperature control, and, of course, there's a lot of linkage there to the build-out of data centers, but not just data centers. I think, in general, building-efficiency products are going to be of greater importance. We're also talking about things like water infrastructure and other types of critical commodities, and companies that assess the efficiency of use of any types of commodities, I think are going to be in great demand. And maybe lastly, I'll just mention because there's no doubt that batteries are going to have to play a very significant role in dealing with the intermittency linked to various types of power generation, and, at the moment, no one really is able to compete directly with China when it comes to building those batteries at cost. But, regardless of cost, there's going to have to be a greater build-out of battery technology through the West and, through the friends of the US, let's say, and I think we're going to see very rapid development in that area in order to try to catch up with where China is today.
Thomas Mucha: Let's drill down on that topic. I love the topic of electrifying transportation. I am a proud son of Detroit and of the auto industry. So, I want to pick your brain a little bit about this. Obviously, it's capital intensive, it's grid dependent. How are you thinking about the biggest bottlenecks as we move down this road of electrifying transportation? And how do you think about underwriting returns for the so-called, you know, picks and shovels investments that are necessary to enact this transition?
Saul Rubin: So, electrification of transportation theme has sort of moved in waves, and currently it's somewhat out of favor. The reality is, in the long run, we will see the electrification of transportation, but today there is too great a dependance upon China for key aspects of that supply chain. And so there will need to be the development of an alternative supply chain, whether it pertains to the manufacturing of battery cells, or indeed, the mining and refining of critical materials that go into those batteries themselves and the electric motors and other components. So, electrification of transportation makes sense in the longer run. But it's still going to take a little while. But for the time being, the opportunities are really going to rest with those that can provide that alternative solution when it comes to battery-cell technology.
Thomas Mucha: So, wrapping up, Saul, we've covered a lot of ground here, but these are all areas of widening opportunities for active investors. So, from your perspective, where is valuation dispersion greatest right now and what are the catalysts that you're looking for that could drive rerating? In other words, what should our listeners pay the most attention to as these themes mature?
Saul Rubin: I think there are two areas today that are still underappreciated. Defense is one of them. And I know that defense names, many of them have run considerably in the last 12 to 18 months or so, but this has come after many, many years of being largely ignored as a sector, partly down to things like ESG and the popularity of ESG, but, for one reason or another, the defense names and sector has been hugely unpopular. And the change that we've seen take place in the last 12 to 18 months, I think represents a start and only a start. And to put this into some kind of context, to me, the way I think of these companies today, I would term them as government staples as opposed to consumer staples. But you can think of them similarly to consumer staples because consumer staples are often very popular because people see the demand for those kind of products as very stable and growing over time. And I think the reality is: one is going to look at defense in the same kind of way. We can see that spend and that demand being sustainable and growing over many, many years. And I think, quite frankly, more likely we'll see faster demand growth than we do in the consumer staples side. And yet, when you look at the valuations and you look at the multiples, even on multiples that are only 2 to 3 years out, you're paying the same or lower multiples for the defense companies than you are for the consumer staples — I think that's entirely unreasonable. So, yes, you've seen a lot of volatility recently, but I would say, with regards to defense, we're still at the beginning.
Thomas Mucha: This is not a quarter-by-quarter development here; this is a long-term structural change in how policymakers are viewing the real world.
Saul Rubin: I totally agree. And then the other area I think, which I mentioned earlier, is factory automation. There are many devices that go into improving the efficiency of manufacturing, and as countries like the US and Europe and the UK look to re-industrialize — and I think they will — I think you'll see this trend continuing again for years and years. The only way they're going to be able to do it is doing it efficiently with respect to labor, and that means that there's going to be much higher levels of automation. And I think that today that's still not appreciated. This re-industrialization trend, again, it's at the beginning — very few people really have bought into this kind of idea. But there are companies there that produce wonderful product that can be put into factories today that improve efficiency, and as those investment dollars go into re-industrialization trends right across the world, those companies are going to benefit. So, I think those are the two areas that I would be looking at today.
Thomas Mucha: All right, Saul, well, I could spend the rest of the afternoon talking to you about these things. But for the sake of our listeners, I think I want to wrap it up. But I do want to say that everything you've talked about here today is critical to the way that I think about the world, the way I think about how national security policy is shifting investment incentives, and the core aspects of this come down to: Can we allocate capital most efficiently across these industries and across these areas to positively benefit that national security environment? So, not to put any additional work pressure on you, but you better get this right, man.
Saul Rubin: I hope so.
Thomas Mucha: Once again, Saul Rubin, Global Industry Analyst here at Wellington, thanks so much for joining us on WellSaid.
Saul Rubin: Thank you, Thomas.
Views expressed are those of the speaker(s) and are subject to change. Other teams may hold different views and make different investment decisions. For professional/institutional investors only. Your capital may be at risk. Podcast produced January 2026.
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