Back to base pyramid, looking for the real needs

The world is increasingly focused on resilience, security, and strategic self-sufficiency. Capital is progressively flowing back to foundational needs such as critical energy infrastructure and defence.

It is more important than ever to identify opportunities where strong fundamentals and demand drivers coincide with attractive valuations, according to Orbis Investments.

Many will be familiar with Maslow’s Hierarchy of Needs – the idea that humans are motivated by five categories of needs, with higher-order ones (such as self-esteem and entertainment) only emerging once more basic needs (like water, food, shelter, security, and employment) are met. At Orbis we believe this framework is also applicable to nations and offers a useful lens through which to understand the current global landscape – as illustrated by this diagram.

The Hierarchy of Needs of a Nation

Many developed nations – who have for some time been luxuriating in higher-order needs – have increasingly done so at the expense of the foundational ones, to the point where the base can no longer support the top of the pyramid. Governments are now being forced to reallocate resources from the top back to the bottom. A notable example is UK Prime Minister Starmer’s February announcement to increase defence spending, funded by cuts to the overseas aid budget, followed in March by reductions to the welfare budget.

Our view is that this is happening now for a couple of reasons: a prolonged emphasis on higher-order goals at the expense of foundational ones, and a broader geopolitical shift toward national self-interest. For decades following the fall of the Berlin Wall, developed nations benefitted from what became known as the Peace Dividend – a period marked by relative geopolitical stability, expanding global trade, and a belief that essentials like energy, security, and food would remain abundant and affordable. Defence budgets were cut, and attention turned to social progress, environmental agendas, and speculative growth. But in many cases, this came at the cost of resilience. Allied militaries weakened, and conventional energy sources such as nuclear and natural gas were sidelined in favour of renewables – contributing to energy crises, including the tripling of electricity prices in the UK and blackouts in Spain. The cracks in that once-stable foundation are now impossible to ignore.

This reordering has been accelerated by a broader retreat from global cooperation toward national self-reliance – a trend made more visible after Donald Trump’s return to office, but one that has been building over the past decade and was sharply exposed by the supply chain failures of the pandemic era. Institutions that once defined global collaboration – such as the United Nations, the World Health Organisation, the World Trade Organisation, and even the North Atlantic Treaty Organisation – have become less effective or increasingly questioned. Recent actions by countries such as the United States and Israel further underscore this shift. Both have acted decisively in pursuit of their national interests.

Countries have a renewed appreciation that ultimately, they are on their own. No one else is responsible for their security, energy or food supply, and certainly not their industrial success. As countries rebuild the base of their pyramid of needs, the implications for economies, industries, and investments are only beginning to unfold. It is important, in our view, to navigate the risks this transformation introduces, and to capitalise on the underappreciated opportunities it creates.

This framework not only helps contextualise the macro environment – it maps closely to where we’re finding the most compelling investment opportunities through our bottom-up research.

Higher up the pyramid, fewer value opportunities

While we’re not averse to investing further up the pyramid, it’s a part of the market where the balance of risk and reward has become less favourable – still crowded with capital, and offering fewer mispriced opportunities. Years of social, political and market enthusiasm funnelled capital toward aspirational causes and consumer luxuries, creating fertile ground for strong performance, but also inflated expectations. As budgets tighten and priorities shift toward strategic essentials, those tailwinds may fade, and valuations leave little room for missteps. This means that the opportunities further up the pyramid are few and far between.

That said, Orbis is not entirely absent from the upper tiers of the pyramid – just selective. Nintendo Co., Ltd. (TYO: 7974), for example, has seen strong early demand for the new Switch 2, a next-generation gaming console that builds on the success of its predecessor with improved performance and backward compatibility. While near-term earnings remain muted, Nintendo’s continued expansion into films, digital content, and theme parks is helping unlock the full value of its beloved intellectual property. Meanwhile, theatre operators Cinemark Holdings, Inc. (NYSE: CNK) and IMAX Corporation (NYSE: IMAX) are positioned to benefit as audiences return to cinemas, and the appeal of premium theatrical content endures.

Lower order, wider pool of value opportunities

When it comes to financial security, we’ve found more compelling value outside the perceived safe havens. With the US fiscal position deteriorating, sovereign debt in countries like Norway, Iceland, and Brazil offers better risk-adjusted return potential in our view. Norway has no net debt, runs persistent surpluses, and is backed by a US$1.9 trillion ($2.9 trillion) sovereign wealth fund. Iceland, despite its ‘frontier market label, offers high-yielding A-rated bonds supported by strong governance, a disciplined central bank, and a straightforward economy anchored by abundant geothermal energy, tourism, and fishing. Brazil, while more volatile, compensates investors with double-digit yields and a very undervalued currency – underpinned by a credible monetary authority and export revenues less tied to global trade cycles. This reflects Brazil’s commodity-heavy export base, particularly in iron ore and agriculture, where demand is driven more by China’s domestic consumption than its export sector, making Brazil’s revenues less sensitive to swings in global manufacturing and trade. Across all three, we see attractive yields in under-appreciated currencies, offering diversification and a meaningful margin of safety.

Further down the pyramid, in industrial security, we’re focused on companies enabling the physical and digital backbone of successful modern economies. This includes both the semiconductors powering AI and connectivity, and the infrastructure firms rebuilding the systems that support them. On the semiconductor front, we own businesses such as Taiwan Semiconductor Manufacturing Company Limited (NYSE: TSM), Samsung Electronics Co., Ltd. (KRX: 005930), and Micron Technology, Inc. (NASDAQ: MU) – all benefiting from secular demand for AI, computing, and connectivity, yet still trading at reasonable valuations compared to many of the AI-infatuated names capturing investor attention today. At the same time, the urgent need to reindustrialise and modernise critical infrastructure in the West is creating powerful tailwinds for a range of companies in our portfolio. Balfour Beatty plc (LSE: BBY) is a global engineering and construction firm building everything from power lines to defence facilities. It also owns a portfolio of low-risk infrastructure, like toll roads, student housing, and military accommodations, which it built but now collects rent from, providing a steady stream of recurring income. Keller Group plc (LSE: KLR), the global leader in geotechnical engineering, plays a foundational role early in the construction process – typically getting paid first while avoiding much of the project risk. MasTec, Inc. (NYSE: MTZ), a specialist in infrastructure installation, is helping to modernise the grid as aging energy systems face rising demand. And Generac Holdings Inc. (NYSE: GNRC), best known for residential generators, is becoming increasingly important in providing backup power for data centres and industrial users as electrification accelerates and grid reliability deteriorates.

National security, long overlooked by markets, has re-emerged as a strategic priority. Europe has been galvanised to boost defence spending and infrastructure investment in response to growing geopolitical risks and a requirement to reduce reliance on the US. We began building exposure to defence stocks five to six years ago, when they were deeply out of favour. That contrarian positioning, rooted in valuation discipline and a clear-eyed view of geopolitical realities, has since paid off. While we’ve trimmed most of our holdings after strong gains, we continue to own a number of high-quality aerospace and defence contractors – among them Leonardo S.p.A. (BIT: LDO), Rolls-Royce Holdings plc (LSE: RR.), and BAE Systems plc (LSE: BA.) in Europe, and Hanwha Aerospace Co., Ltd. (KRX: 012450) and Mitsubishi Heavy Industries, Ltd. (TYO: 7011) in Asia. As mandated defence budgets claim a growing share of GDP, we believe these businesses are well placed to benefit from a prolonged period of increased investment in security and strategic capabilities.

As governments confront the hard realities of national resilience, defence may have led the way, but energy is proving just as urgent, and arguably even more fundamental. Investor sentiment has shifted from a strong focus on renewables toward a broader appreciation for what’s practical and scaleable. That shift is still underway, presenting under-appreciated and mispriced opportunities with plenty of runway. Kinder Morgan, Inc. (NYSE: KMI), with its vast natural gas pipeline network, plays a critical role in delivering the reliable electricity the world increasingly needs. Siemens Energy AG (ETR: ENR), once cast aside, is now benefiting from growing recognition of the value of its gas turbine and grid equipment businesses, especially as AI data centres demand not just more gas, but the switchgear, transformers, and infrastructure Siemens makes. Prysmian S.p.A. (BIT: PRY), a leading manufacturer of power cables, plays a vital role in updating and expanding the grid – from onshore transmission to offshore wind connections. Doosan Enerbility Co., Ltd. (KRX: 034020), a Korean engineering firm, brings rare and trusted nuclear power plant delivery capabilities. And Shell plc (LSE: SHEL) remains compelling for its strategically important gas business, which is being gradually re-rated as energy pragmatism returns.

In Orbis’s view, this reordering of national priorities marks a structural reset, not a passing phase. As capital flows back to the foundations of each nation’s needs, we endeavour to skate to where the puck is going, not where it is now – seeking opportunities where solid fundamentals and resilient demand drivers are paired with compelling valuations.

Alec Cutler joined Orbis in 2004. He is a member of the Bermuda-based Multi-Asset Investment team and is responsible for the Orbis Global Balanced Strategy.