A TPDEARR Article
Trans-Pacific Dynamic Equity Allocation Research Report
Welcome back, all ye investors, traders, entrepreneurs and money-minded beings from around the world, to another issue of the TPDEARR!
Enough chitchat; down to business.
Kicking things off with Demographic Trends, we would like to immediately home in on the economic implications inherent in the relationship between urbanization and globalization, and how they can be analyzed in the shaping of modern cities to guide profitable investment flows, particularly around the Asia-Pacific region.
Urban areas abound with countless fascinating features, as all true city squirrels know, but we’re here to identify targets for this quarter’s TPDEARR Squad, and analysis of urban populations allows us to trace some throughlines that connect to future commercial opportunities.
Contemporary Urbanism
First off, in today’s world, to be a modern, cosmopolitan city is to be connected to the global economy, and is to be increasingly diverse. Incorporating diverse ideas into commercial innovation is a hallmark of economic progress—a dominant feature in competition, not coincidentally—and no place mixes diverse people and ideas more vigorously than a city, so it’s no surprise that modern cities are economically stimulating when compared to other types of human settlements. The growth of a city, then, can be measured in increases in diversity and population density just as much as it can in new construction and civic development. And while the physical urban infrastructure involved has its own constituent ingredients with very physically-stationary impacts (some of which we discuss in detail in Natural Elements,) the economic infrastructure of a modern city is not nearly so geographically restricted.
Cities attract both foreign people and “outside” capital and mix them together with what’s already there. The more efficiently an urban area can channel capital flows and labor efforts among its increasingly-diverse set of participants, the greater the city’s economic product, and the more intertwined it becomes with the global community. For example, according to the 2024 World Migration Report, global migrant remittances (=the wealth generated by migrants in a destination economy and sent “back” to the origination economy) is approaching USD$1 Trillion, and has now surpassed the amount of Foreign Direct Investments being received in some low- and middle-income nations. In other words, the economic livelihoods of workers and their families are increasingly spread across international boundaries, and increasingly significant in national economic planning, including that of the wealthier, destination economies which are generating all this urban income, but which are denied the utilization of any capital that’s being exported by migrant workers. We illustrate this to show that it’s not just companies’ and corporations’ “re-shoring”/”friend-shoring” efforts which are reorienting in the current moment, but “everyday folks” as well. Growing cities are driving this trend.
Another compelling aspect of modern city growth reveals itself in the idea of peri-urbanism, or, the urban-rural interface. As cities grow, urban borders expand, butt-up against, and blend into their surrounding areas, creating a peri-urban region of activity that juggles the competing interests of urban and rural dwellers on either side. One recent study finds that “urban–rural interfaces amplify the development coming from cities, adding their own contribution and then dissipating it regionally”, indicating that urban economics sprawl out beyond municipal borders. The effects of urban sprawl are not limited to residents within the cities themselves; contemporary urbanization effects everyone. Denizens of the East Asian megacities of Seoul or Tokyo will surely agree that considering a “Seoul Proper” or “Tokyo Proper” which doesn’t include integration and interaction with the surrounding metro area is… unhelpful, and misrepresentative of the reality of the livings and workings of each city, which are highly intertwined with the surrounding areas. At some point (or, size, rather), “the line” becomes too smeared to distinguish anymore.
How can we find trans-Pacific investment opportunities in what’re widely agreed to be steady global increases in demographic urbanization, what UN Habitat calls “the most urgent challenge facing our planet“? Let us turn again to the “re-shoring” phenomenon and follow its implications towards a hopeful Squad target. As a firm decides to move its physical operations to a “friendlier” geopolitical or economic environment, we must rationalize this effort against the simple truths of common sense. Setting up a business operation in a new location, whether or not that specific operation already exists in another place, and whether or not any physical equipment or workers are relocated, nonetheless involves establishing a “new” physical operation in the new location, with newly-located everything. Sure, on paper, the firm involved may still only recognize one “transferred/relocated” business operation (the newly-located one) on its books, but that newly-located operation was, in a physical sense, newly constructed as well, not actually “relocated” physically. A physical factory cannot be picked up and moved internationally; it must be erected and built on-site, in the new location, with physically available materials, in order for it to exist, which is how this kind of thing always works. As such, anywhere that finds itself the recipient of re-shoring efforts experiences urban construction fit (at least) for the commercial operations in question; re-shoring contributes to urbanization.
Furthermore, since the bulk of what we are generally discussing here are industrial and manufacturing operations, we must infer that the firms involved, hell-bent as they are in maximizing their economic opportunities (expressed openly through the act of re-shoring itself,) are implementing the newest and most-advanced technologies available in order to maximize the future economic output of the effort. Thus, not only does re-shoring increase development by increasing the establishment of economic capacity, but it also establishes the most-up-to-date available realities of new economic capacity, which includes the endless folding of technological progress into the equation. In other words, wherever possible, we must respect that operational planners are leveraging their scale and resources to consider any and all opportunities to automate operations (aka: the newest-available operational enhancements), replacing human workers for more-cost-effective robotics, including in all re-shoring activity. Though loud voices in the labor rights debates might like us to think otherwise, our working future will not be shared less with robots than it is today. Knowing that such a heavily-roboticized future looms more mightily every day, even if not yet for companies of all sizes, nonetheless underscores our recommendation of [JUN.24 Squad Asset #1].
Contemporary urbanization, as much as it can be seen as the continual re-development of concentrated human settlements, openly displays the process of human society experimenting with and implementing new technologies as they emerge. And if we have learned anything from the history of capitalism-as-usual, we cannot deny that the capitalists who are able to deploy their capital intelligently will reap a larger share of the returns than the paid laborers who provide the elbow grease, and all of this will be centered around hotspots of urbanization. Because the contemporary time currently promotes a culture of increasing technological integration among its participants, the attitude of the masses reciprocally demands the same, perpetuating a positive feedback loop that ramps up the rates of tech-innovation and adoption. As we, as a species, continue to become more familiar with our technological counterparts in society, negative stigmas will be drowned out by positive outcomes from integration. New cities are not being built in ancient styles with ancient technologies. New technology is guiding the entire urban design and construction process, including on the rapidly advancing front of sustainability, and backwards thinking to the contrary does not have much of a vote at the table.
Across Asia, urbanization trends continue to rise; in some special economic zones and small city-states, like Hong Kong, Singapore and Macau, urbanization is virtually 100%, and there’s a lot that the rest of the world can learn in observing how their all-encompassing metros thrive and adapt within relatively-contained borders. In Southeast Asia, Malaysia’s populace is ~80% urbanized and still growing, while everyone else1 has yet to breach the two-thirds level, indicating lots of room to grow.
Even rural areas are urbanizing in important internal ways; further integration of modern technologies, a hallmark of urban development, benefits rural citizenries as well. Most people connect to the internet; prove me wrong.
Fear not the roboticized city of the future, it’s coming either way, and the urbanism of the modern era paints this backdrop everywhere, and with an increasing proportion of residents within its urban fold each and every day. And if you live in a wealthy megacity, you’ll be able to play in these spaces first.
The Heterogenic Dividend
Who among us believes that it’s our equality, not our diversity, that pushes us to excel?
As we continue on our update of economically-relevant trends in trans-Pacific demographics, we come again to the urban biome, not for its pull towards the future, in this case, but for what we can see in it as a product of its residents’ diversity. First of all, it’s irresponsible to make sweeping claims about diversity, particularly because the word “diversity” isn’t singularly understood, and could refer to many different aspects of difference within a population (i.e., is it “better” to consider ethnic diversity at representative value, or only in terms of how much of a populous is foreign-born?) Nonetheless, it’s worth mentioning (again, no doubt) that, at base, diversity is the inclusion of difference, and the more difference there is in any given system, the broader the variety of data2 exists from which to draw conclusions. This is, without a doubt, an extreme competitive advantage for more-diverse metropolitan areas.
Cities are hotbeds of diversity experimentation, and the “urban draw” continues to make the world’s largest metropoles even more diverse. According to the most recent (2020) US census, big cities continue to become even more diverse. Is it any surprise that the highly-diverse likes of New York, NY and San Jose (“Silicon Valley”)/CA have such significant economies? A greater diversity of participants in a system, such as a capitalistic one, expresses a greater diversity of perspectives, and a greater extension of interconnectivity, lending a boon to innovative capacity: a clear competitive advantage. We shall call this advantage the Heterogenic Dividend; it is not guaranteed, but it is also non-negligible. Readers are welcome to waste their time challenging this idea.
Since no single statistic encapsulates the impact of diversity on a society, the notion of the Heterogenic Dividend must be read into in consideration of the unique conditions of each locality; effects can go a number of ways. Some societies will attempt to actively suppress increases in diversity, and investors should be wary of the impact such behaviors can have on capital flows. Is it “better” (i.e., more profitable) to invest in a specific area that restricts foreign ownership of businesses, or provides unfair subsidies to certain participants to tamp down competition? Is what’s good for a given individual demographic class the same as what’s good for the competitive market environment? Certainly these questions are debatable, but a company’s strength comes from its ability to adapt and thrive in ever-changing market environments—it’s antifragility—not it’s ability to leverage handouts or nepotism. (Also, always take note of your target companies’ internal diversity dynamics at the executive level. Do they align with how a given federal administration is targeting its policy?) Urbanization is correlated with the Heterogenic Dividend, so we will continue to identify and factor-in metropolitan policy-making that bolsters and expands diversity-related opportunities into our TPDEARR Squad target analysis.
“Brown Gold”
And now, as we get to the end of the demographic rainbow we’ve been riding on, we come to a simple truth that we cannot hide from, though we all try our damnedest to: everybody poops. Hopefully it’s clear why this might be relevant in our urban context.
We’d like to go a step further, though, and point out that the magnitude of solid waste produced by a population increases with its development; richer economies make more waste per capita, and we’re not just talking human excrement, to be precise. All manner of solid wastes, from food to agricultural to industrial to chemical to plastic, all balloon with development, and it has taken centuries for modern waste management systems to finally be able to accommodate the enormous trash loads of the most advanced Western economies. So, as emerging economies throughout Southeast Asia continue to progress (and urbanize, rapidly,) the volume of waste produced will also grow and become even less manageable than it already is, even if their populations start to taper off, as is occurring in Japan and South Korea.
The problem of waste disposal will not (now, or ever) simply “go away”, and throughout most of the Asia-Pacific region, it will continue to grow well past the intermediate-term timeframe, making it a strong foundation of support for [JUN.24 Squad Asset #2]. As urban populations get richer, the demand to remove waste becomes increasingly higher-valued by urban residents, particularly by members of the newly-emerging middle classes, which tend to view waste removal as requisite for a higher quality of life. Improper waste management can lead to pollution of the water, air and public spaces, as well as declines in desirability as a destination for tourists and business operations. In the long run, effective waste services are not optional for a country to ascend into the upper tier; higher-income countries, such as Japan, Singapore and even South Korea, consistently reach close to 100% of municipal solid waste being collected by the system.
In an extensive Asia Waste Management Outlook published by the UN Environment Programme, which gives more info about crap then you may have thought possible in one document, we can follow the monies to find a couple interesting features of the industry. Right off the bat it can be seen that rarely is the collection area for waste also its final destination. The US, for example, routinely exports millions of tons of trash (that is, thousands of shipping containers per month) to other countries who do not have nearly as sophisticated of waste services; among those willing to accept US trash (which no longer includes the PRC, by and large) enormous amounts of plastic waste go to the non-OECD nations of Malaysia, Viet Nam, India and Indonesia, all of whom are less-well-equipped to deal with it than the US.
Another trashy point of interest is the nature of costs for waste collection, in which we observe that it is ultimately municipal governments which shoulder the bulk of the cost burden for collection services. As populations get richer, more of those costs can be recovered, finally reaching nearly 100% in the most advanced nations. But for most Asian cities, collection is rather dismal and there is still a long way to go in this respect. Nonetheless, the actual operations of physically collecting municipal solid waste are typically contracted out to private enterprises who can provide the labor and scale of service necessary for major urban areas. Whether it’s the local governments, national assistance programs, or end users/trash producers themselves (on the richer end of the scale), successful waste collection companies continue to get paid and see their market opportunities grow. Urban development trends across the trans-Pacific lend excellent support to our choice of [JUN.24 Squad Asset #3].
Of course, we also can’t forget that many associated “costs”, such as environmental costs, are being exported to poorer countries along with the trash itself. After all, the vast majority of human trash still ends up in landfills. We, as a collective human society, are still not doing a very good job, as it were. There will be plenty more investing/market opportunities in this arena over the coming years.
We would like to also note here a “white-sheeted” partner-in-crime to one component of municipal solid waste: toilet paper. We discuss paper products more in this quarter’s Natural Elements article, but the connection here merits its own mention. Toilet paper alone costs the sacrifice of millions of acres of forest annually, and sustainable solutions to the problem have not yet been widely distributed. True, every culture adapts slightly different bathroom habits as they develop, but there is no compelling reason to assume toilet paper usage increases will not likewise occur throughout Southeast Asia as its urban areas evolve and seek greater incorporation on the world stage, with global business and tourist travelers, and in development metrics recognized the world over. We strongly support [JUN.24 Squad Asset #4] for the waste-related opportunities available to its position in the paper products sector.
Without even counting the steadily growing rate of global recycling, material gets “paid for” many times over as it undergoes its lifecycle from raw input to finished product to waste, so we can’t help but view the “final” product as some type of “brown gold”. Just because rich people don’t want something doesn’t mean there isn’t a market for it. For investors, in a word, it’s a good poop-ortunity.
- Remember, the TPDEARR focuses on economies with accessible equity markets for outside investors, otherwise any insight in the analysis would be irrelevant to our readers; smaller nations like Brunei Darussalam may not receive the same attention, statistically speaking.
↩︎ - Variety of data is an intensely important concept, especially at the present moment. Now, mid-2024, as companies, politicians and the general public debate uses and reaches of implementing “A.I.” in our ever-technologizing societies, the issue of data use is paramount. But one would be running astray to infer that “private data” is at the heart of the data conversation here, for there are more serious concerns involved with how the core technologies actually operate. In brief, it must be remembered that all datasets are incomplete, and that serious vulnerabilities arise when there are a consolidated number of service providers who all “train” their core services on the same, incomplete, datasets. We discuss in more depth some of the compelling monetary ramifications of this in the JUN.24 Macroeconomic Evolution article. ↩︎
tkscm, limited 