Space exploration is booming – now’s the time to back it

published 5 April 2020

A deadly virus is spreading across the world at an accelerating rate. Shops, restaurants and pubs have closed down. No one is allowed out of their house and the economy is collapsing. There are moments when it feels like the apocalypse. The world is ending and we are all doomed. Investors may feel the same way. Amid the carnage on the stockmarket one small category has done well – space stocks. It is almost as if people have decided to give up on this planet and try a different one instead.

Space stocks are soaring

Space exploration is a small sector, of course, but there are definite signs of life. The only pure quoted space stock is Richard Branson’s Virgin Galactic, which aims to offer the first tourist trips into space. True, its shares have been volatile. They tripled at the start of this year, then crashed even before any of us realised Covid-19 would spread beyond China. In the last week, they bounced by 50%.

There are also a couple of space exchange-traded funds (ETFs) that track a broad range of space-related companies. The aptly named Kensho Final Frontiers Fund is up from less than $160 last week to more than $185 this week. The Procure Space ETF – with the cute ticker UFO – is up by a similar amount. Other private firms are forging ahead. Blue Origin, controlled by Amazon founder Jeff Bezos, has, slightly surprisingly, been designated an “essential” company by the US government and allowed to keep operating. Tesla founder Elon Musk’s Space-X is pressing on with plans for a new rocket capable of going to both the Moon and Mars.

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There are two reasons why space companies have soared above the carnage on the stockmarket and in the wider economy. First, all the terrible news about collapsing demand, closed factories and rapidly rising unemployment doesn’t make any difference to them. They didn’t have much in the way of sales anyway. They were devoting their resources to making products that might be fantastically valuable, but not for another five or six years. A six-month shutdown is not terribly relevant one way or another.

Next, 50 years after men first landed on the Moon, a genuine “space economy” is starting to emerge with real revenues. It includes tourism, communications, mining and transport. It is getting big enough to be included in US GDP calculations and in the numbers of many other countries as well. In the US, it is estimated at $158bn, making it by far the global leader. For Canada it is estimated at $5.6bn and for Germany $3.1bn. The Space Foundation estimates the total value of extraterrestrial GDP at $419bn in 2019 with 79% of that in the private sector. In truth, given its size and rapid growth, it is surprising there is not a larger quoted sector and more interest from investors. The few who are taking the plunge are probably right to do so. It is one of the most exciting new industries around.

To infinity and beyond!

Of course, it remains to be seen whether a genuine space industry emerges, whether it is profitable and whether the investors backing it now ever make a return on their money. But there is a broader lesson here for investors. The economy may look absolutely terrible right now with uncertain prospects for recovery, but whole new industries are going to emerge.

That has been true even in the deepest depressions. After the crash of the 1870s, the railways forged ahead and new technologies based on electricity started to emerge. In the 1930s, following the Great Depression, industries such as television and electrical household appliances would later form the foundations of the post-war boom. After the crash of 2008 the app economy was just getting going, with companies such as Uber and Airbnb raising capital. This is a good time to back emerging technologies because valuations are at rock-bottom. Space may or may not turn out to be the industry of the future – but it is certain we will look back in ten years’ time and realise that something was, and it was very cheap in 2020.

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Matthew Lynn is a columnist for Bloomberg, and writes weekly commentary syndicated in papers such as the Daily Telegraph, Die Welt, the Sydney Morning Herald, the South China Morning Post and the Miami Herald. He is also an associate editor of Spectator Business, and a regular contributor to The Spectator. Before that, he worked for the business section of the Sunday Times for ten years.

He has written books on finance and financial topics, including Bust: Greece, The Euro and The Sovereign Debt Crisis and The Long Depression: The Slump of 2008 to 2031. Matthew is also the author of the Death Force series of military thrillers and the founder of Lume Books, an independent publisher.