When a hurricane heads towards Florida, it isn’t automatically expected to make waves in Australian investments, but that’s one of the implications of Helene, which ripped through southern US states over the weekend, devastating a large swathe of North Carolina, writes Jordan Kennedy from Pitcher Partners Sydney Wealth Management.
Smack in the path of the flooding is Spruce Pine, home to 70% to 90% of the world’s high-purity quartz, which is critical for use in semiconductor chips and solar panels.
While the Belgian company that owns the larger of two quartz mines in the area has told local news it has shut down production ‘temporarily’, it’s far from clear how much damage has been caused, given highways in the area have washed away, towns have all but vanished, and at least 11 landslides have hit the region.
Spruce Pine is considered the world’s most important location for high-purity quartz, and prolonged disruption could be devastating.
The last time there was a global semiconductor chip shortage, it created chaos in industries from toasters and washing machines to the automotive sector.
So what should investors make of such a potentially significant blow to supply chains?
Investors should have clear strategies
The first message should be ‘don’t panic’. Trying to build an investment strategy around a black swan event like flooding in a quartz mine is risky — the second-order impacts simply aren’t clear.
We know that chopping and changing investments based on world news can be tempting, but strategic, long-term, incremental strategies are by far the proven best outcome.
Everything looks important when you are peering through a short-term lens. It’s only when you zoom out, that you can see the bigger picture.
Think back to the supply chain disruptions we saw during Covid.
On the one hand, images of boats parked up outside global ports, unable to dock, meant a sudden spike in demand, prices and timelines for consumer goods.
Before long, though, the stockpiling and over-purchasing triggered by that supply chain issue evolved into warehouses groaning with goods and retailers unable to offload everything they’d ordered.
Swerve too sharply, in other words, and you can pay for it down the track.
A second lesson from that time, though, is that you can’t always predict what a sudden shift in supply chains might mean.
Few would have predicted that a shortage of semiconductors would trigger an incredible rise in the value of second-hand cars, for example, with flow-on impacts for sectors like transport and tourism.
A ship getting stuck in the Suez canal delayed construction goods, disrupted food supplies, and impacted hospitals, as materials were delayed.
While a disruption in high-purity quartz and silicon might mean challenges for Australia’s renewable energy transition if we can’t get components for solar panels, it could also mean good news for other renewable options like batteries or wind.
For Australian miners and manufacturers, it might be the push they need to explore our own local resources.
A third takeaway is that short-term disruption is less important than the long arc of chaos, and we are starting to see this more often in investor preferences.
When things get tricky, gold and cash benefit from increased investor caution, as people turn towards safe-haven assets that can be counted on to withstand volatility.
Gold is up 65% since Covid first hit, and while few of our clients would count as preppers, many have quietly increased their gold exposure, perceiving it as an asset that can retain its trading value no matter what social, political or climate emergency ensues.
Cash also has a certain appeal — particularly when you see widespread loss of electricity or connectivity. While most of us have stopped carrying much in the wallet, it’s good to know you can access what you need in an emergency.
Challenging expectations
For us, the final message from Helene’s fury is that climate change will continue to challenge our expectations.
Once-in-a-lifetime disasters are happening more often, and with that comes a sense of fear for the future. People are reaching out earlier for financial advice, and they are looking for advice around security and protection, not just for growth.
Predicting the future is never easy, but preparation remains the best defence.
This article was first published by Proactive on 04 October 2024. Licensed by the Copyright Agency. You must not copy this work without permission.
