A new study by Swiss wealth and asset manager Pictet entitled "Megatrending – Opportunities Ahead" assesses the causes, current state of play and investable opportunities of three megatrends, namely resource scarcity, (de)globalisation and the service economy.
A study by Pictet entitled Megatrending – Opportunities Ahead highlights the value of turning megatrends into investment ideas such as clean energy and robotics, prompting investors in how to frame opportunities as they unfold.
The Swiss private bank, which has made "thematic investing" one of its trademarks in recent years, interviewed over 50 experts: investors, academics, scientists, urban designers, CEOs and founders of a range of businesses including in robotics, clean energy, hospitality, engineering and agriculture.
With the world’s economy and population set to continue growing, the report highlights the problem of resource scarcity. Supply growth is failing to keep up with rising demand, creating pockets of scarcity.
For instance, the quality and quantity of water is decreasing, it states. "Available, usable water per capita is falling across the globe. Fortuitously, the number of patents for waste recovery and water resource management has nearly doubled since the year 2000. Businesses with leak prevention technology, such as US-based Xylem, give exposure to this megatrend," the report said.
Pictet also pinpoints smart infrastructure. "It is now possible to catalogue every material used in the construction of a new building. When those buildings are dismantled in the future, it will be possible to know exactly which materials were used in construction and [from] where. This is before a demolition has even begun, so this can greatly ease recycling and the potential recovery of value," the study says.
Another example of a megatrend is resource-efficient agriculture. With the world’s population set to reach 10 billion by 2050, a 70 per cent growth in food production from 2007 levels is needed. "Precise farming equipment can enable an efficient use of land and minimise waste. Up to 30 per cent of food never reaches our plates. Food waste solutions will be in demand. One example is AI-driven sensors that determine when a fruit or vegetable is about to be wasted and should be repurposed, for example, into sauce or juice," the study said.
This news service has carried a number of articles about how wealth managers are paying more attention to food production and its demands. Population pressures, wars supply chain disruptions have shaken up the space. See more here and here. Pictet has made such predictions about big trends before, such as here and here.
Bugs and fish
Insect farming also offers a solution to overfishing, deforestation and pesticide use, the report said. In nature, insects exist to consume waste – turning rotten fruit into soil, for instance. Fish farming now produces one in every two fish consumed. But fish farms consume eight million tonnes of fishmeal annually. Insect meal, produced from using by-products of waste, is the best alternative to this. France’s InnovaFeed develops insect breeding and processing technologies, it said.
Sustainable forestry can also replace fossil-based materials because many of the products made from oil can also be made from a tree, the report said. Finnish forestry business UPM-Kymmene is building a biorefinery in Germany for this purpose.
Forestry is an asset class that has been gaining increasing attention from wealth managers recently. Gresham House, a specialist alternative asset manager, expects world timber consumption to rise almost threefold over the next 30 years, resulting in higher timber prices. This is due to increased housing demand as well as the move towards a low carbon economy and renewable energy. See more here.
Production lines have also become so fast that traditional quality control cannot keep up, Pictet said. A factory might produce flawed textile for hours before the problem is spotted. Machine vision cameras can spot problems in a minute, avoiding huge wastage, the study said.
Another trend is deglobalisation and there are two forces driving it. The first is declining trade. The second is the fact that the interests of China and its allies are becoming less aligned with the interests of the US, Europe and their blocs, Pictet continued.
Companies recognise that relying on countries, which their government no longer has a good relationship with, is risky. But it’s not as simple as a reversal of globalisation. Global trade – the sum of exports and imports as a proportion of GDP – peaked in 2008 and has fallen ever since, Pictet said.
For instance, Southeast Asia has benefited from the shift away from China. "Some US companies have not fully re-shored production, but rather moved out of China. A good example is when Apple shifted its iPad production to Vietnam," the report said.
As geopolitical tensions with Russia and China continue, defence companies will benefit, it adds. The war in Ukraine has sent defence contractors into overdrive, but further out, cyber security businesses will see more research funding as cyber warfare increases. Israeli security startups offer exposure given the country’s pool of cyber professionals, Pictet said.
In Indonesia, 90 million people remain unbanked, yet 74 per cent have access to the internet via smartphones, the firm continued. Companies with exposure to mobile banking, especially in the developing world, are a prime opportunity for investment, as are startups in the world of decentralised finance.
Another example is reshoring and automation. "There’s a cost implication to reshoring but automation is a solution. Swiss manufacturing companies have shown the way by automating everything they can to counter high labour costs (even for Europe). Collaborative solutions such as ‘co-bots’ where robots work alongside humans will be in demand," the firm said.
The service economy, the share of the world’s value generated by services as opposed to manufacturing or agriculture, is going to jump most notably in the developing world and this is already happening, Pictet continued. The number of people employed in services in middle income countries grew from 35 per cent in 1991 to 52 per cent in 2019 – a rise of 50 per cent. Over the same period, services employment in rich countries increased from 64 per cent to 74 per cent.
If developing countries can navigate their entry into the service economy and connect to the global economy (think India as an IT outsourcing destination), they could skip the stage of industrialisation with its major capital and resource demands, the firm concluded.