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Supertrends: Pushing for change
OUR normal way of life has ground to a halt because of the Covid-19 pandemic. This also holds true for the economy, as governments have shut down economies to contain the spread of Covid-19 and help their health systems cope with the sudden surge in critically ill patients. This crisis is challenging existing systems and structures, sowing the seeds for further change ahead. The 2020 coronavirus outbreak is likely viewed as a turning point in our lives and thinking.
In an exceptionally positive year for global equity markets in 2019, our Supertrends themes outperformed, providing further evidence that the societal trends that they touch upon remain highly relevant.
This year, our "angry societies" trend evolved into "anxious societies", as popular discontent is increasingly targeted at inequalities and other issues at home. Our "technology at the service of humans" theme focuses on edge computing as a complement to cloud computing in an increasingly digitalised world. The infrastructure trend has a new smart-cities subtheme, which looks at the infrastructure challenges facing fast-growing urban centres.
Our silver economy Supertrend has a new focus on emerging markets, which are home to a fast-growing senior population and harbour scope for strong growth in the area of healthcare provisioning and insurance.
The "millennials' values" theme looks at how this cohort is driving responsible consumption. We have also launched a sixth Supertrend focused on climate change, which focuses on sectors that can play a key role in decarbonising economic growth in the coming years.
ANXIOUS SOCIETIES - INCLUSIVE CAPITALISM
At the time of the launch of the "angry societies" Supertrend a few years ago, disgruntled middle classes were shaking up politics in many developed countries, leading to the rise of political populism and protectionism in an increasingly multi-polar world. Three years later, anger is morphing into anxiety. Faced with the coronavirus pandemic, governments and companies are wrestling with an unprecedented shift in the size and nature of social responsibility.
Investors can and will play an increasing role in enabling solutions that address the key concerns of citizens around the world, including inequality, rapidly changing work environments, old age funding, housing affordability, healthcare and education. Now is the time for inclusive capitalism.
- Companies providing solutions to lower costs of basic needs, such as healthcare and housing. This includes innovative and individualised products/services that are better aligned with personal needs, as well as the adoption of new technologies or materials.
- Companies providing reskilling and upskilling as skill requirements change radically. Furthermore, companies that continuously upskill their workforce have improved talent sourcing and retention, and increased productivity.
- Companies helping to improve safety and security of citizens. With ever-increasing data gathering, cyber security remains a key risk.
INFRASTRUCTURE - CLOSING THE GAP
Infrastructure stocks tend to offer solid dividend yields, which lend them appeal as investors struggle to generate returns amid low or even negative interest rates in many parts of the world. This low or negative interest rate environment, which aids the approval process for new projects, should remain a tailwind for the this Supertrend in the months ahead.
Separately, climate change concerns are creating powerful regulatory and political catalysts within the infrastructure space. Finally, our new sub-theme "smart cities" focuses on the infrastructure challenges facing fast-growing urban centres, including new challenges revealed during the coronavirus pandemic.
- Transport infrastructure operators of airports, toll roads and railways with regulated business models and inflation-indexed cost-plus-pricing formulas, which allow them to raise prices in order to pass rising inflation on to their customers.
- Utility companies with a growing share of renewables in their generation mix. This energy transition also requires smarter transmission lines (smart grids) and energy storage technology to keep electricity supply reliable when more power comes from renewables.
- Data-driven technology solution providers that help city planners and residents to manage the infrastructure challenges related to traffic flows, building design, as well as waste and water systems in fast-growing urban centres.
- Companies that provide infrastructure equipment for the roll-out of the new fifth-generation (5G) telecom technology, such as data centres, telephone tower companies and equipment providers for 5G telecom assets.
TECHNOLOGY AT THE SERVICE OF HUMANS
There are many reasons why companies continue to invest in their digital transformation, such as adapting more quickly to changing customer needs, gaining operational efficiency and boosting profitability. The coronavirus pandemic has uncovered many new reasons to further increase investment in digitalisation.
Increased mobility, automated real-time processes (edge computing) and at-home education and entertainment are just a few of them.
- Telecom equipment and semiconductor firms with strong exposure to the rollout of 5G networks and edge computing architecture, tower companies and construction firms that maintain and implement 5G networks and local data transmission platforms.
- Software, IT services and semiconductor companies that are enablers for artificial intelligence, virtual reality, augmented reality and industry automation processes.
- Internet platform providers that disrupt traditional businesses, for example in healthcare, media, advertising and agriculture.
- Companies in the healthcare sector that use technology to improve execution in areas such as diagnostics, sequencing, therapeutics, care delivery and the development of medical devices.
SILVER ECONOMY - INVESTING FOR POPULATION AGING
At the heart of this Supertrend lies the projection that the world's senior population will double to more than two billion by 2050. This will transpire regardless of the state of the world economy or political events, creating needs associated with an ageing population in healthcare, insurance and funding solutions and consumer and property markets. Looking ahead, a focus on emerging markets makes sense, given that two-thirds of the incremental number of seniors will live in that group of countries, wherein there is already an existing deficit of healthcare provisioning and public and private insurance solutions.
- Biopharmaceutical, medical technology and life sciences companies that address conditions affecting the elderly through innovative products such as immunotherapies or personalised cancer vaccines
- Providers and operators of senior housing, dialysis clinics and other care facilities, as well as managed care organisations that can direct patients to the most efficient care setting.
- Health and life insurance companies, private wealth advisors and asset managers with strong pricing capabilities.
- Consumer companies focusing on basic needs, as well as the more discretionary wishes of senior consumers, such as tourism companies, beauty product companies, or manufacturers of prescription glasses and hearing aids.
Sustainability has been a key subtheme of the "millennials' values" Supertrend since launch. While vegans remain a small minority in developed countries, Generation Y and Z are more likely to adopt a plant-based or vegetarian diet due to concerns about the environment and health. Their evolving food preferences are influencing broader society, driving sales of meat and dairy alternatives. Now even well-known fast-food chains are testing plant-based meat and hamburgers on their menus. Millennials are also taking the lead in other areas, including subscription-based services.
- Companies that score high in terms of environmental, social and governance (ESG) criteria and embrace sustainability as part of their strategy. We apply an ESG overlay to the entire stock selection.
- Companies exposed to digital native platforms (social media sites, e-commerce, Internet services, streaming platforms).
- Companies exposed to fun, health and leisure (video gaming, eSports, millennials' consumer brands).
CLIMATE CHANGE - DECARBONISING THE ECONOMY
Global warming has caused major disruption in weather patterns, and extreme conditions appear to be becoming the new norm. The United Nations World Meteorological Organization estimates that if we do not change the way we consume and produce worldwide, global temperatures are likely to rise by 3-5 deg C by the end of 2100. In light of these prospects, governments around the world have stepped up efforts to fight climate change and embarked on energy transition strategies to achieve the targets established under the 2015 Paris Agreement.
- Companies leading in renewables (wind, solar, water, etc) and other CO2-free (ie, nuclear) power generation and electricity-storage technology providers.
- Integrated oil-and-gas companies that can square the circle by cutting greenhouse gas (GHG) emissions through investments in renewable energy projects while maintaining dividend yields. Carbon-capture technology companies amid capacity enhancements in less carbon-intensive fossil fuel-based electricity production.
- Automobile manufacturers offering electric vehicles and companies offering sustainable fuels such as biofuels, hydrogen or other technologies. Transport companies with a strong commitment to CO2 reduction, and the railroad industry overall.
- Companies providing vertical farming technology, gene editing technology providers, as well as controlled environment-agriculture technology providers that can enhance agricultural efficiency. Low GHG emission meat processors and plant-based food product providers.
The writers are Michael Strobaek, global chief investment officer, Credit Suisse and Nannette Hechler-Fayd'herbe, global head of economics & research, Credit Suisse