CONTRIBUTORS
Kim Catechis
Senior Investment Strategist,
Franklin Templeton Institute
Karolina Kosinska, CIPM
Analyst
Franklin Templeton Institute
Preview
This is one of five papers from the full report—Consider This: The weaponisation of supply chains—exploring how key supply chains are evolving – and what it means for long-term investment strategy.
Twin trends of electrification and digitalisation are increasing societal dependence on critical minerals. Meanwhile, there is no energy transition or decarbonisation without significant ramps in many of these minerals—most notably lithium, nickel, copper and aluminium. Non-China-based suppliers of these materials are likely to be subject to increasing geopolitical pressure and will have a key role to play over the next decade in securing supply for both the United States and Europe.”
Critical minerals are the backbone of the modern economy—powering everything from electric vehicles to defence systems. But their supply chains are increasingly shaped by geopolitics, not just economics. We examine how rising demand, concentrated processing capacity, and export restrictions are exposing deep vulnerabilities in global supply chains.
China currently dominates the refining of most critical minerals including rare earths, lithium, and cobalt—creating structural dependencies that are difficult to unwind. As governments prioritise national security and industrial resilience, investors must reassess assumptions around access, pricing, and long-term supply.
Investment takeaway
A new economic and geopolitical order is shaping up, in which three centres of economic gravity stand out: The United States, China and the European Union (EU). Each one has structural strengths and weaknesses and a different governance system, which ultimately determines policy direction. This new order prioritises geoeconomic logic over traditional economic logic.
In our opinion, investors would do well to bear in mind that the flow of sufficient quality critical minerals can no longer be taken for granted and should be considered a major risk factor in a wide variety of industrial supply chains, from automobile, to technology, to defence and more.
WHAT ARE THE RISKS?
All investments involve risks, including possible loss of principal.
Equity securities are subject to price fluctuation and possible loss of principal.
International investments are subject to special risks, including currency fluctuations and social, economic and political uncertainties, which could increase volatility. These risks are magnified in emerging markets.
The government’s participation in the economy is still high and, therefore, investments in China will be subject to larger regulatory risk levels compared to many other countries. There are special risks associated with investments in China, Hong Kong and Taiwan, including less liquidity, expropriation, confiscatory taxation, international trade tensions, nationalization, and exchange control regulations and rapid inflation, all of which can negatively impact the fund. Investments in Hong Kong and Taiwan could be adversely affected by its political and economic relationship with China.
An investment in private securities (such as private equity or private credit) or vehicles which invest in them, should be viewed as illiquid and may require a long-term commitment with no certainty of return. The value of and return on such investments will vary due to, among other things, changes in market rates of interest, general economic conditions, economic conditions in particular industries, the condition of financial markets and the financial condition of the issuers of the investments. There also can be no assurance that companies will list their securities on a securities exchange, as such, the lack of an established, liquid secondary market for some investments may have an adverse effect on the market value of those investments and on an investor’s ability to dispose of them at a favorable time or price.
Investment strategies that incorporate the identification of thematic investment opportunities, and their performance, may be negatively impacted if the investment manager does not correctly identify such opportunities or if the theme develops in an unexpected manner. Focusing investments in the information technology- and/or technology-related industries carries much greater risks of adverse developments and price movements in such industries than a strategy that invests in a wider variety of industries.
Any companies and/or case studies referenced herein are used solely for illustrative purposes; any investment may or may not be currently held by any portfolio advised by Franklin Templeton. The information provided is not a recommendation or individual investment advice for any particular security, strategy, or investment product and is not an indication of the trading intent of any Franklin Templeton managed portfolio.
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