Soaring energy costs have sunk these global sectors

Amit Goel: We have seen supply chain disruptions throughout the last two or three years. They started with COVID when a large part of Asian supply chains was affected because of the COVID lockdowns. Then you see, I think imbalanced demand across the world. There was a lot of stimulus in the Western world in COVID, which resulted in a very strong actually consumer demand in parts of the US, in parts of Europe. 

I think the supply chains in Asia were still affected by COVID. And that continued to result in big supply disruptions. And now with China getting back into COVID, it is further accentuating that. I think what we have seen over the last 12, 24 months in some parts is that supply disruption continues. 

I think I'm talking about apparel, chemicals, and even semiconductor chips. 

In autos, VC supply chain reception on auto equipment, components, as well as semiconductor chips at the margin when demand is now slowing down and some supply chains are getting fixed, I think we are seeing some resolution of these supply chain issues.

The most affected sectors have been sectors like auto, where component supply chains were affected, but chip supply was affected as well because chip demand suddenly went up as the world went digital due to COVID. Similarly, we saw big supply chain disruptions in areas like chemicals, because a large part of that is produced in China and used around the world and used for industries like pharmaceuticals, basic chemicals are affected a lot, and prices of basic chemicals are up. 

We continue to see supply disruption in commodities, which has seen commodities moving up as well. I think some of these supply disruptions are continuing. If you ask me, autos are still feeling supply disruption in terms of chips. We own a large car rental company and they haven't been able to buy cars last year. They were buying almost 200,000 cars and the number of cars they bought last year came down by 30%. We expect that to be resolved in the next 12 to 24 months. 

Similarly, I look at a few chemical companies in India. They were all impacted by huge import price increases from China for basic chemicals. I own a sportswear company, which supplies apparel and shoes to Nike around the world. They were hugely impacted by COVID lockdowns in their major facilities in China and Vietnam. I think we are on a path to resolution. 

You have already seen US consumption moderating at a point. You have seen China's consumption now moderating because of COVID and then fixation on these supply chain issues. So I would say we have passed the kind of big hump of supply chain disruption.

They're still continuing across some sectors and we should expect resolution with a combination of both demand softening as well as fixation of these supply chains. 

LW: What is the outlook for global energy prices?

Amit Goel: The biggest risk to global growth, global asset prices, especially equities across developed markets, as well as emerging markets is the outlook on energy prices. Obviously, energy prices were already high with supply being tight last year, we've seen oil going to a hundred dollars. We have seen spot LNG going to $20, coal going to $400 and all of that got accentuated by this Russia/Ukraine issue, given Russia is such an important part of the global energy trade. They export more than five million barrels per day of oil. This supply is getting affected, we have seen a continuous increase in oil and gas prices, across all the spectrums that we see.