Megatrends: The forces shaping our investment decisions
Megatrends are powerful, transformative forces that can change the trajectory of the global economy by shifting the priorities of societies, driving innovation and redefining business models – all of which have an impact on investment decisions.
The 5 megatrends that have the ability to shape the future include:
1. Technological breakthroughs
Disruptive innovation is most likely to emerge in two scenarios; (i) new solutions are developed to resolve a significant constraint or challenge, or (ii) new competitors are attracted to industries with large profit pools and high returns.
Consider the advent of electric vehicles, e-commerce, solar panels, robotics, blockchain, cloud computing, streaming, smart grids and many other modern-day innovations. In each case, engineers and entrepreneurs are aiming to capitalise on the need for a new solution or a better alternative in existing markets.
2. Demographics and social change
Changes in global demographics will bring significant challenges and opportunities for societies and businesses. Italy and Germany lead the way in Europe with the median age of their populations at 47.9 and 46.6 years (only behind Japan at 48.2 years). In Western Europe, 1 in 5 people are older than 65 years of age and this is expected to rise to 1 in 4 people in the next decade. These trends are likely to slowly but steadily change the outlook for household spending (catering for older consumers), inflation rates, economic growth and government policy (the US already spends over 18% of GDP on healthcare). Ageing and the resulting decline in the labour force will hence require dramatic social and technological changes.
3. Emerging global wealth
In the last twenty years, developing economies have been lifted by the rising tide of globalisation and manufacturing shifting to Asia. Two decades of unprecedented growth has lifted China’s per capita GDP from a meagre 8% of US per capita GDP in 2000 to roughly 30% this year. This rapid growth has been enabled by significant infrastructure investments, support for an export-focused manufacturing base and increased spending on innovation (research & development or R&D). In turn this has resulted in persistent growth in household incomes; the World Bank notes that China alone is set to add one billion people to the global middle class between 2005-2030.
4. Climate change and resource scarcity
An expanding population and the rising demand for food, energy and materials continue to strain the finite resources of the planet. The need for solutions that improve energy efficiency, lower food waste and provide alternatives to scarce resources has never been greater. In 2018, global emissions continued their march higher growing 1.7% yoy, and the US National Climate Assessment report noted that sea levels are now rising twice as fast as 25 years ago. Since the social and economic consequences of climate change are substantial, investing in energy efficiency and renewable energy has become ever more so important.
5. Rapid urbanization
With people in the world living in cities more than ever before – according to McKinsey as of October 2018, the top 50 cities account for 8% of global population – cities’ share of global growth is rising. As cities grow large, they require significant infrastructure, including communication networks (e.g. 5G, fibre), transit and transportation (e.g. metro, bridges), social infrastructure (e.g. hospitals, schools) and housing. This was a key driver of commodity demand and fixed investments in the last 10-15 years as China and other developing economies industrialised rapidly and millions of people migrated to cities.
Translating megatrends into investment themes
We strongly urge you to talk to your Just Service adviser on a regular basis as these trends are an important consideration when reviewing your investment portfolios.
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The Just Service Client Service Team
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