What does the future hold in the eyes of Andrew Monk, the onetime progenitor of Blue Oar Securities, Oriel Securities, and the current driving force behind VSA Capital?
There’s certainly a Chinese flavour to it, that much is clear enough, whatever blame game the media might be playing about the coronavirus at the moment.
Monk first went to China back in 1993 and, has since, he says, “spent a long time walking the pavements there.”
Among his other activities he has set up a VSA office in Shanghai, which is owned and run locally on a franchised basis, but with which he keeps in regular contact.
So, as far as active participants in the UK market go, his experience of China is as good as any.
“We’re one of the few firms in London that’s pro-China and that can do business in China,” he explains.
“And we’ve been able to raise capital in China too. Not many people can say that.”
This long and deep experience with the world’s up-and-coming trading nation has led him towards a certain confidence in his judgement that, whatever the short-term fall out from coronavirus may be, the economic future of the world still has China firmly at its centre.
“Yes, there are underlying feelings of anger against China,” he says. But he is doubtful whether any of the current ill-feeling will lead to any meaningful retribution from the West.
“China is too powerful to stop,” he says simply.
“The resource companies will all go back. China is the biggest users of their commodities. If anything China comes out of this stronger. The Chinese people are not furious with their own government. In general the Chinese population is highly supportive of the communist government. Every year their lives have improved, so why buck the system?”
True, there are short-term risks now that weren’t in place at the beginning of the year. Consumer confidence in China has collapsed, at least anecdotally, since the coronavirus crisis erupted. Some unofficial guestimates put the reduction in spending at a whopping 50%.
That’s because although most of China is now back at work, there is still a widespread acknowledgment that demand for Chinese goods from its main customers in the West will be slack for a significant period of time going forward.
And the numbers for the overall economy inside China don’t look pretty either, if you take the latest PMI numbers and growth projections to be meaningful in any way other than the abstract.
But on the other hand, the Chinese government has all the economic tricks and sleights of hand available to it that Western governments have, including a resort to modern monetary theory, otherwise known as “stimulus.”
That stimulus is likely to drive a fairly rapid recovery in sectors like construction, which in turn could feed through into a wider recovery. It will also, along the way, stimulate a renewed demand for commodities and in turn aid the recovery of the Western producers, miners as well as oil companies.
As it stands there’s more of a glut of oil than there is of any of the metals, so it will likely be in the construction materials that the first real evidence of this will come through. Those who can still remember those heady days before the coronavirus went global will recall that the first indicators that the market was going into crisis came not from the equity bourses but from the commodities markets. Equities have now recovered their poise somewhat, but are still well down on where they were at the start of the year.
Likewise commodities, with one or two notable exceptions, and it would seem likely that the harbingers of a full, or fuller recovery will be, as they were of the panic, the commodities.
In this context, Monk himself is taking a keen interest in vanadium, amongst others. VSA acts for both Ferro-Alloy Metals (LON:FAR) and Invinity Energy Systems, in which the London vanadium champion Bushveld Minerals (LON:BML) has an interest. Guess who got Bushveld and Invinity, or RedT as it then was, together? – that’s right, the same Andrew Monk who believes that vanadium flow batteries are likely to become the world’s number one energy storage system.
“I think everything in energy is going to go towards storage,” he says. “The marginal cost of solar energy and wind is zero, the cost is in the storage.”
And the profit is in the delivery. The way Monk sees it, those who want energy fast will end up paying greater premiums, in a way somewhat analogous to the broadband market.
“The price of energy will depend on how fast it comes in,” he argues.
That, of course, isn’t in itself a story unique to China. But guess what? – China holds the vanadium market in balance, accounting for around 50% of demand and 50% of supply. Not surprising then that one of London’s most vocal and active participants in the Chinese business scene is taking an interest.