As the US-China Space and Arms Race Takes off, These Investments Should Too By Neil Newman SCMP, September 28, 2020

The Saturn V rocket carrying the crew of the Apollo 13 mission to the moon launches from the Kennedy Space Center in Florida

 

China is boldly going where the Americans and the Russians have gone before

Neil Newman has some thoughts on how to make some stellar stock picks

THE FINAL FRONTIER

I was eight when the Americans landed on the moon. Like many little boys, I had a fascination with  space  and astronomy, and was wholly into the excitement and adventure of space flight. At school we drew pictures of the moon-landing dress rehearsal, Apollo 10, coming back to earth. My rocket had engines firing, engulfed in smoke and flames, with legs popping out the side of the metal tube. I added a parachute and a spaceman waving at the top, and got quite upset when everyone else in the class drew a little grey triangle with three striped parachutes and made fun of my drawing. They had all seen it on television, but we didn’t have one. My parents quickly got us one before the Apollo 11 mission. The  Americans  and the  Russians  were constantly sending up rockets, landing probes on the moon, Mars and beyond, and I read all about it in the boys’ magazines I amassed. We had fantastic ideas of colonising the moon, but it later turned out it had just been talk. The truth was that the Americans just wanted to land a man on the moon first to get one over on the Russians, who had beaten America to space. The Saturn V rocket carrying the crew of the Apollo 13 mission to the moon launches from the Kennedy Space Center in Florida. Photo: AP

As soon as the prize had been won and the American flag was propped up on the moon, attention waned. Only six manned landings took place, the last one in 1972. The returning astronauts said that the moon smells horrible. As moondust stuck to the suits and was dragged into the Lunar Module it reacted with the oxygen and moisture in the air to create an aroma like gunpowder. So apart from there being no air, not much water, and nothing to eat, why would anyone want to live there anyway?

FINGER ON THE BUTTON

The era of the moon shots did not come about by itself, of course. America and the Soviet Union were engaged in a bitter Cold War for  technological  and cultural supremacy, and the threat of nuclear holocaust loomed even as man first set foot on the moon in 1969. At the start of that same decade the world had come within minutes of disaster during the Cuban Missile Crisis. This backdrop explains why both superpowers were willing to spend so much on the space race. ADVERTISING

In 1965, the Apollo programme cost the US nearly 0.8 per cent of annual GDP, with the US defence budget running at 7.2 per cent at the same time. The combined budget in 1967 had increased to almost 9.5 per cent. In other words, the Americans were willing to spend 8-9.5 per cent of everything they made to beat the Soviets, who similarly dug deep into their pockets to beat the Americans. Today, Nasa’s budget is about 0.1 per cent of GDP at US$22.9 billion, and the US defence budget runs at around 3.2 per cent of GDP, or around US$680 billion, which combined is about a third of what it was in the 1960s.

FLY ME TO THE MOON

First stop, the moon. Again.

Although the moon is quite inhospitable, and a moonbase would smell awful, having an outpost and refuelling station would make it easier to take the next long leap to other planets – a plan proposed by the United Launch Alliance, a joint venture between Lockheed Martin and Boeing.

AS IT HAPPENS

Despite the tight budget, Nasa is planning two steps to the moon in the next few years and is requesting a 12 per cent increase in its budget to get there. First it will put the “Lunar Gateway” in orbit around the moon, a space station which will serve as a communications hub, laboratory, and a base to rovers and robots – not to mention the first space motel for longer journeys.

The Lunar Gateway is also expected to be a stepping stone towards Nasa’s 2024 moon base camp, Artemis, and is expected to be funded and maintained by the Canadians, Europeans (European Space Agency or ESA) and the  Japanese  (Japan Aerospace Exploration Agency or Jaxa) – who also have plans for the moon’s first Toyota minibus, which will bounce over the dunes on Bridgestone tyres. A model of the Mars 2020 Rover at the Kennedy Space Center, Florida. Photo: EPA China , meanwhile, is less enthused with the Lunar Gateway.

It has its own project named the International Lunar Research Station (ILRS) and is looking for partners including the ESA. Construction of the ILRS is expected to begin in the late 2020s and be completed in the 2030s with long-term robotic missions and short-term crewed missions. Russia and the ESA have yet to have serious discussions with the Chinese on the project, but Moscow will likely chip in if it suits them.

Making these lunar adventures possible are cost-saving measures like reusable rockets, boosters and crew capsules. On the US side,  SpaceX  and Blue Origin are just a few high-profile examples of private industry involvement, with a host of other aerospace-related companies supplying components as well. The Chinese are also developing reusable Long March rockets for their programme.

With all this supposed to be coming together in about three to five years, it’s no wonder SpaceX and Blue Origin are so busy with their fancy self-landing rocket technology. Viewers of SpaceX’s live-streamed missions would see legs popping out from the rockets, engines ablaze and engulfed in smoke. As you can imagine, I smiled and thought back on the drawings I made as an enthusiastic kid. SpaceX launches satellites from Cape Canaveral, with booster returning to the ground safely.

LIFE ON MARS

The next human frontier is Mars, for which manned missions have been proposed since 1965, but nothing has come of it. In recent years hope has been revived thanks to SpaceX’s Starship mission, which could launch in 2024. Its founder Elon Musk says humans will be living there in the foreseeable future – feet down on Martian soil in 2025, with a colony growing potatoes like Mark Watney, hero of the film and novel The Martian, by 2028-2030. And a million people to Mars by 2050, with lots of jobs waiting.

In the meantime, there are plenty of probes and other missions to Mars. The Chinese are as enthusiastic as any to get there – and bring souvenirs back. It appears  China and the US  will inevitably be jostling about who gets there first and how, rather than asking why.

COMING BACK DOWN TO EARTH

During the Apollo programme from 1961-1972, the cost per mission seat into orbit was about US$392 million. That dropped to US$170 million with the reusable Space Shuttle between 1981 and 2011. Right now SpaceX can do it for a cool US$55 million, and Musk wants to see prices come down to US$2 million with modern reusable equipment. If only they’d had that in the 1960s – we may have gone much further and perhaps found something of value other than foul-smelling dust. Now we have another shot at it.

A look inside Virgin Galactic’s commercial spaceship

The space mission revival and rising  tensions  between the US and China make me wonder if we’re at risk of seeing another space and arms race collide; two superpowers rattling sabres on earth while going full pelt to prove their technological mettle in the heavens. Private contractors with businesses that overlap defence and space exploration should benefit handsomely from government funding, as will the companies whose business is space flight.

Additionally, new space technology businesses such as super high-speed orbital communications or fake shooting stars should find a market.

If this is the case, then as investors we should be thinking about medium- to long-term space, aerospace and defence themes, for which there are plenty of listed stocks and US-based exchange-traded thematic funds. From time to time it should also be possible to invest in pre-IPO stocks such as SpaceX and Blue Origin in the US, and i-Space and Landspace in China.

With a selection of those in one’s portfolio, there should be some good opportunities in the long term, as long as we don’t blow ourselves to bits. ■

Neil Newman is a thematic portfolio strategist focused on pan-Asian equity markets

Neil Newman is a thematic portfolio strategist focused on pan-Asian equity markets. Experienced in the major global financial centres of Tokyo, London and New York, he is a regular commentator on commercial investment strategies that suit constantly changing investor trends. He is a long-term resident of Hong Kong.

https://www.scmp.com/week-asia/opinion/article/3102944/us-china-space-and-arms-race-takes-these-investments-should-too

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