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Supertrends - investing for the long term
GENERATING income and investing for the long term can be challenging as investors need to identify the right opportunities. Linking long-term trends to concrete investment opportunities geared to the long term can improve the portfolio's risk/return profile in the long run.
Credit Suisse has identified five Supertrends or long-term investment themes: Angry Societies, Infrastructure, Technology, Silver Economy and Millennials which are expected to dominate in the coming years and provide investment opportunities.
First Supertrend: Angry Societies - Multipolar World
The years of hyperglobalisation helped reduce inequalities among countries but raised inequalities within countries.
Rising inequalities within Western countries and frustration over perceived or real failures of the political establishment to deal with current societal challenges are leading disenchanted middle-class voters to demand change. This brings to power governments with strong mandates for a policy more oriented to support the domestic economy, create jobs at home and address some of the sore points of the middle class. This will likely shift the spotlight to national champions and brands, defence and security and emerging-market consumers.
Since emerging markets (EMs) were big beneficiaries of hyperglobalisation, it is assumed that they would suffer in a more multipolar world. However, EMs are not as exposed to international trade and in a majority of EM countries, exports make up only a third or less of GDP. EMs also have a powerful domestic growth driver - their own consumers. Many EMs, such as China, are now at a stage of development where they can transform into more consumer- and services-driven economies.
- Manufacturing, construction, telecom equipment and IT manufacturing producers in industrialised countries, materials, retail and wholesale industries and healthcare companies in Europe;
- Aircraft producers, conventional and new weapons system providers, cybersecurity companies, surveillance system and data managers and European defence companies;
- EM domestic travel and holiday providers, selected domestic car, pharma and consumer brands and e-commerce companies, international fashion, personal care, quality food and sportswear companies.
Second Supertrend: Infrastructure - Closing the Gap
A global wave of new infrastructure programmes has captured the attention of investors. Governments have turned to infrastructure spending to stimulate domestic economic growth. As infrastructure spending programmes develop, we move our focus from transport infrastructure - which has been the first priority of many governments - to water, energy and affordable housing.
- Materials suppliers, large-scale cement and aggregate producers, steel companies, construction equipment and component suppliers;
- Gas and electric utilities, power generation facilities, transmission and distribution pipelines, smart grids, water sanitation and desalination facilities;
- Rail-based local transport systems, prefabricated parts producers, alternative low-cost building materials producers, companies providing insulation, efficient heating and air conditioning systems;
- Emerging-market national mortgage corporations and covered bond issuers.
Third Supertrend: Technology at the Service of Humans
Technology and innovation are making workplaces safer, increasing productivity and providing better products and services for people.
Technology at the service of humans will remain a key topic. Digitalisation paves the way for innovation, with Internet platform companies and firms offering virtual reality and augmented reality technologies among the main beneficiaries. The sheer amount of data that continues to grow strongly will result in opportunities for cybersecurity and data waste management. The fourth revolution of the industry will continue to mostly benefit vendors of semiconductors and robots. Healthtech, the Internet and the human genome project offer fields for investing in the future of the healthcare industry.
- Top digitisers, Internet platform companies, Web advertisement agencies, companies that create IoT, cloud-computing companies, data management and cleaning companies;
- Virtual and augmented-reality companies, Artificial Intelligence related startups, vendors of semiconductors, IT-service companies, vendors of robots, providers of factory automation and maintenance software providers, self-driving cars, logistics and precision-farming specialists;
- Remote patient-monitoring solutions providers, health education and management portals, biotechnology companies specialised in immunotherapy and gene therapy.
Fourth Supertrend: Silver Economy - Investing for Population Ageing
We expect the addition of more than one billion senior citizens by 2050 and an associated drop in the dependency ratio to pose immense challenges, but also present opportunities. Sectors positioned along the continuum of senior wants and needs - such as senior-centric consumer goods, healthcare services, senior housing, as well as wealth management and pension solutions - should see growth opportunities.
- Online shopping facilities, food and drug retailers with smaller next-door outlets, smart home-device producers, e-bikes, leisure and tourism companies, gaming and casino companies, vitamins and dietary supplement producers, personal care and beauty product providers, prescription glasses and contact lens manufacturers;
- Producers of lipid-lowering statins, heart valve replacement providers, oncology pharmaceuticals and biotechnology specialists;
- Assisted living services, senior housing operators, dementia facilities, ambulatory care and physiotherapy providers, household assistance and entertainment providers, automated safety equipment manufacturers.
Fifth Supertrend: Millennials' Values
Millennials make up 50 per cent of the world's population. They are digital natives with a different mindset and priorities from previous generations; they value a conscious but experience-focused and fun-oriented lifestyle.
Millennials are the largest generation in history and soon coming to full maturity as investors. Sustainability, clean energy, impact investing matter to them and will gain in importance. Representing a rapidly growing consumer market, they influence companies' success by their product choices. When investing, they will focus on companies that live up to environmental, social and governance (ESG) standards.
Millennials are price-sensitive as most graduated during the financial crisis and have fewer resources compared to previous generations. They live with their parents to have more money at their disposal, spending their money with a focus on satisfying desires and lifestyle choices. Eating smart is a lifestyle choice and while they prefer cheaper, they are also willing to pay for fresh and healthy food, and go to great lengths for the food experience. Millennials are an active generation and value experiences. Their drive for adventure and excitement pushes them towards new forms of fitness. Boot camps and marathons are in fashion and smartphone fitness apps are taking over the market.
Micro apartments are developing as an attractive type of housing for Millennials and investors. Alternative housing forms such as single living reflect Millennials' needs and values and are becoming more widespread.
- Top ESG-rated companies by sectors, electric-vehicle manufacturers, renewable energy providers, energy storage providers in particular solid-state battery manufacturers;
- Microfinance and impact investments;
- Millennial brands, social media sites, Millennial e-commerce leaders, specialty sellers of organic, ethnic, fresh and vegan food, smaller food and beverage brands, sporting goods retailers and manufacturers, makers of devices that monitor workout progress, low-cost fitness centres, interactive gaming via mobile devices;
- Property developers with a focus on micro apartments with communal areas.
- The writer is chief investment officer Asia-Pacific, Credit Suisse.