MEGATRENDS are powerful, transformative forces that can shape the world and change the trajectory of our future. Some of these trends start small, but eventually they become powerful, unstoppable and irreversible. These megatrends impact business models, drive innovation, and inspire ideas.
The “next generation” theme and investing in the “winners of tomorrow” is our vision of the future, shaped by megatrends causing structural changes in our lives and society that influence consumers and companies alike.
Thematic investments have moved closer into focus in recent years, offering a forward-looking perspective and aligning investment strategies with emerging trends and structural tailwinds, providing the potential for higher long-term growth and going beyond the business cycle.
The “next generation” theme adds growth elements and diversification into portfolios. It can also be a good satellite to a core portfolio.
We map the future into five key themes that should benefit from secular growth: arising Asia, digital disruption, energy transition, feeding the world, and shifting lifestyles.
Each has sub-themes based on structural socio-economic changes, and we target themes that should remain relevant for many years.
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For example, the sub-themes for the arising Asia theme are the Asian consumer and Asian tourism. For digital disruption, the highest conviction is on cloud computing and artificial intelligence (AI), and there is also digital content, cybersecurity, 5G, Internet of things and fintech.
Sub-themes for energy transition include clean energy and future mobility, and for feeding the world, food tech, agricultural fertilisers and animal health. Lastly, sub-themes for shifting lifestyles include digital health, genomics and healthy living.
Assessing the hype on cloud computing and AI
Excitement is growing over generative AI. Following the launch of ChatGPT, more products leveraging AI capabilities are expected to arrive. The race towards AI has just started, and we do not expect sudden or steep changes in how we search for things on the Web or how we work yet. However, generative AI will have a significant impact on all industry sectors as the next productivity frontier.
According to McKinsey research, the banking, high-tech and life sciences sectors could see the biggest impact on revenues from generative AI, as it changes decision-making and collaboration, which previously had the lowest potential for automation.
According to Precedence research, the global cloud computing market, valued at US$480 billion in 2022, is expected to reach US$2.3 trillion by 2032. The global AI market, valued at US$454 billion in 2022, is expected to hit US$2.6 trillion by 2032.
Structurally positive on digital health and genomics
The number of people over the age of 60 is expected to double to two billion by 2050. This suggests higher incidences of chronic disease will drive up medical costs around the world at an increasingly unsustainable rate. Adopting digital technologies could transform the healthcare industry and lower healthcare costs.
According to Allied market research, the global telemedicine market is expected to reach US$451.4 billion by 2032, up from US$84 billion in 2022.
With around 6,000 known untreatable diseases in the world today, medical breakthroughs in the field of genomics could help solve some of these mysteries. With the power of AI, genomics can unlock knowledge to make drug discovery and development more efficient.
Future mobility: the beginning of profound change
The unstoppable growth of big cities is a challenge for sustainable mobility. Climate change is the catalyst for a profound transformation in the transport business. Governments worldwide are encouraging the transition to electric vehicles and autonomous driving, and this could revolutionise mobility.
Research by the European Energy Agency found that the carbon emissions of electric cars are 17 to 30 per cent lower than for petrol or diesel cars. The global electric market is projected to reach a value of US$694 billion by 2023, according to Vantage market research.
Julius Baer Research predicts exponential growth for electric vehicles between 2020 and 2040, and for autonomous driving to take off by 2030. The average modern car has between 1,400 and 1,500 semiconductor chips, and an EV car usually has 3,000.
These chips are essential, and used to control everything from emissions systems to driver assist systems, which is why we are investing in technology suppliers. For instance, semiconductors such as silicon carbide are used to achieve longer driving ranges and faster charging.
Staying ahead of the curve
The theme of feeding the world is under pressure due to falling global agricultural fertiliser prices and volume. Thematic investors must find ways to distinguish between structural growth of a company or industry, and hype that quickly fades.
The plant-based meat industry, for example, was hyped at the initial public offering of Beyond Meat. Its share price went up 10-fold within three months, but four years later the company is still loss-making and investors who bought the share at its peak lost 97 per cent of its value.
Finding a structurally growing industry with less competition and lower barriers to entry is key to thematic investing. Digital disruption was last year’s detractor but has become the star theme this year, thanks to falling inflation and the emergence of generative AI. Investors can find multi-bagger companies in a “next generation” strategy which offers compelling long-term growth opportunities that will create value and alpha.
By staying ahead of the curve and investing in the winners of tomorrow, investors are in a better position to capitalise on opportunities as they arise, without having to chase the market after a sharp rally.
Serene Chua is Asia investment team mandate adviser and Chen Jiazhi is head of next generation investment management, Bank Julius Baer
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