About 16 years ago, I was hanging off a rock-climbing wall’s overhang, about 15 metres up in the air. And then my friend’s mobile phone fell out of my pocket…

He’d given it to me for safe keeping, while he climbed and I provided his safety line. But we’d forgotten to swap over the phone when we swapped over on the wall…

The phone landed right next to him with a bang, a bounce and no further complaints.

Can you imagine what that sort of drop would do to a modern phone? It’d be in pieces, to put it mildly.

Well, my friend had a shock-proof Nokia phone. It was encased in rubber. And it didn’t break.

We couldn’t believe it. Good old Nokia, we thought.

But Nokia turned out not to be so good. It got left behind in the smartphone revolution. In 2013, the company sold its phone division to Microsoft and it’s now known as Android.

The thing is, Nokia is staging a surprising comeback. But not as a phone maker. As a 5G infrastructure provider. And, most importantly, it is a non-Chinese 5G infrastructure provider.

Alongside China’s Huawei and Sweden’s Ericsson, Finland’s Nokia is a key player for helping phone companies roll out 5G. That means those three companies should benefit hugely from the ongoing 5G rollout.

That rollout is surprisingly capital intensive. 5G must be more reliable, otherwise there’s no point having it. But it uses different methods of blasting information around which need more infrastructure than 4G. Line of sight can be critical, for example, requiring more masts to broadcast from.

My question today is whether Nokia and Ericsson are a good buy based on one surprising angle that the market isn’t factoring in yet. At least, it’s underestimating it.

How would you feel about the Communist Party of China driving several large trucks around central London, remotely from Beijing, without anybody knowing about it? Or having the CCP running our electricity grid out of Hong Kong? Or monitoring British manufacturing from Shenzhen?

Regardless how you feel about it, President Donald Trump doesn’t like the idea. And so he’s pressuring nations to turn to Sweden’s Ericsson and Finland’s Nokia instead of China’s Huawei.

Consider this from Reuters:

The United States is in talks with Brazil and its local telecommunications companies on funding the acquisition of fifth-generation gear produced by Ericsson and Nokia, U.S. ambassador for Brazil Todd Chapman told Brazilian newspaper Folha de S.Paulo.

The thing to notice there is that it was the US ambassador who told the paper. Odd.

Why would a US ambassador speak out in favour of a Swedish and Finnish company, against a Chinese one, in Brazil? After China’s Huawei had pledged lots of funding and investment for Brazil?

Obviously because the US is trying to keep China out. This isn’t about promoting US companies in Brazil. It’s just outright fear of national security. And if that fear escalates, taking Huawei out of the market, that would leave them with Ericsson and Nokia.

If the world is forced to buy Ericsson and Nokia, that bodes well for those companies.

Spats like this are escalating, with Britain’s 5G infrastructure a key playground for the rivalry. Boris Johnson supposedly turned against China recently, caving in to demands from his base.

But this is a new form of gunbot diplomacy. Britain and the US aren’t backing US and UK firms – they just don’t want China.

Even the EU is cottoning on. It recently designated China a Covid-19 conspiracy peddler. And it applied a tariff on two Chinese glass manufacturers for state aid which allowed them to undercut a Finnish glass manufacturer. The thing is, those Chinese companies operate in Egypt, out of a special economic zone which is part of the Belt and Road Initiative.

This is a major precedent. If the Belt and Road Initiative isn’t safe from retaliation, and Chinese companies which manufacture overseas aren’t safe either, that sets up some serious future conflicts. Nations will have to think twice about whether it makes sense to participate in China’s projects or the US and EU’s.

Such issues are supposed to be dealt with at the World Trade Organisation, by the way. So, while the EU criticises Trump for sidestepping the WTO to deal with China unilaterally, it does it itself…

My point is that, if you believe in a new Cold War, with its tech arms races, trade wars, embargoes and proxy conflicts, Nokia and Ericsson are interesting stocks to own.

But here’s the surprise. A Chinese firm has chosen Nokia to provide 10% of its Chinese 5G coverage. China Unicom awarded the contract in an unusual break.

So it seems nobody told the Chinese that a new Cold War is underway. Unless they’re up to their old tech-stealing ways again.

If the West turns on its free market and globalisation ideology again, trying to isolate China as it isolated the USSR, I’m not so sure what happens next for the global economy. But Nokia and Ericsson would enjoy the ride. The last companies you’d expect to, just a decade ago.

They’re not the only ones though. Our tech analyst has found an even better way to profit. While Nokia and Ericsson work on providing 5G infrastructure, this company makes the chip which allows ordinary devices to become “smart”. It allows them to connect to 5G. And I’m not talking about phones. I’m talking about everything.

Find out more here.

Nick Hubble
Editor, Southbank Investment Daily