US reindustrialization will be the top investment theme of coming decades, RBA says

• The "US industrial renaissance" will be the top investment theme of the coming decade, Richard Bernstein Advisors said.
• Overreliance on foreign trade has intensified in the past decade, exacerbated by the pandemic's exposure of global supply chain vulnerabilities.

The reindustrialization of America should be the top focus for investors in the coming years, as the country's "industrial renaissance" is a matter of utmost importance to economic security, Richard Bernstein Advisors wrote in a note this week.

The trend of American companies shifting away from dependence on foreign labor and supply chains should dominate investment strategies in the coming decades the firm said.

"The market is already rewarding the beneficiaries of this capital reallocation, but we expect years, if not decades, of further performance from this critical investment theme," RBA president Richard Bernstein said in a note this week.

"The reindustrialization of America, the American industrial renaissance, the rebuilding of the American capital stock, reshoring, near-shoring, friend-shoring, or infrastructure are all synonymous names for what might be THE most important secular investment theme."

Deglobalization is a powerful trend that's taken shape since the pandemic, when disruptions to supply chains and global trade stoked runaway inflation for economies around the world. For the US, that means big investment in infrastructure on manufacturing will be needed in the coming years as the world reorients.

"If the US had enough productive capacity to be increasingly economically independent, then contracting globalization wouldn't be an important issue, but that is unfortunately not the case. Rather, the US has become increasingly dependent on the rest of the world for goods and services," Bernstein wrote.

"Maintaining a massive trade deficit while globalization is contracting is a toxic combination that is now revealing an underlying structural weakness in the US economy."

Bernstein says the US government's policies have been a major contributor to hindering the country's economic independence, and both of the dominant political parties are culpable for losing sight of the nation's need to prioritize domestic investment.

"We expect both Democrats and Republicans to finally wake up to their misguided tactics. Democrats will likely argue for spending on longer-lived assets (there is some evidence this may be starting), whereas Republicans might shift to a tax reward system for good behavior (e.g., build a production facility in the US and then receive tax benefits) rather than blanket tax cuts whose benefits can 'leak' abroad," he said.

As for specific investments within the broader theme of reindustrialization, the firm said it is focused on energy and utility infrastructure, transportation, real estate, and steel and shipbuilding.

"The market has already recognized the re-industrialization investment theme despite investors' myopia with respect to more exciting technology-related themes, like artificial intelligence. In fact, domestically focused industrial stocks have outperformed the overall market during the past decade."