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Artificial Intelligence - investing in the future
ARTIFICIAL Intelligence (AI) may be the buzz word today, but it is certainly not a new field as it has been developed over the last 50 years. Yet, it is now becoming mainstream, thanks to bigger data, faster computers and smarter algorithms.
Defined as the simulation of human intelligence by machines, AI is quite different from software programs in that it extracts knowledge from data without being specifically programmed. AI enables computer systems to perform tasks that normally requires human intelligence, such as visual perception, speech-recognition, decision-making and translation.
AI is a set of software tools and algorithms that can be embedded in hardware products or software platforms. It is a disruptive technology with profound implications in every aspect of our lives and across sectors such as healthcare, banking, retail, transportation, industrial and education.
Given the vast amount of global digital information captured in ever-growing volumes - 90 per cent of all digital data was created in just the past two years - there is a massive market opportunity for AI, with its market size expected to reach US$127 billion in 2025 compared to US$3.6 billion in 2016, according to BoAML Research.
Last year, US$12 billion was invested on AI-focused hardware, software and services, an amount that could reach close to US$60 billion by 2021.
Opportunities to invest in AI have never been more sought after, with the big tech companies in the US and China racing to develop their own AI technology. In the US, more mature players, dynamic ecosystems, large capital inflows and favourable access to private capital have enabled the rapid rise of disruptive technologies.
US tech giants such as Google, Apple, Facebook, Twitter, Intel and Microsoft lead the market and have been very active in acquiring AI companies. Over 250 private companies using AI algorithms across different industries have been acquired since 2012, with 37 acquisitions in the first quarter of 2017 alone.
Despite having the highest growth potential, largest potential user base and a deep mobile penetration, Asia is lagging just behind the US with fewer, but fast-growing pure disruptive technology players and investments. Asian names such as Baidu, Alibaba and Tencent have huge ambitions to quickly fill in the gaps vis-à-vis their US peers. The Chinese government is also expected to invest significantly in the AI market.
AI matters at the macro level. Global GDP is estimated to be 14 per cent higher (equivalent to US$15 trillion) in 2030 as a result of accelerating development and AI adoption.
The economic impact of AI on global GDP will be driven by productivity gains from companies automating their processes, including the use of robotics, making AI-related investments, and personalising and enhancing their offerings which feed increased consumer demand.
I believe AI will not only increase productivity, but also create job opportunities in the long run. Since the industrial revolution, people have always had the unfounded fear that technology will take away more jobs than it creates.
Yet, economic theory and history teach us otherwise. While AI will create more jobs than it destroys, we must be prepared for the temporary pain of disruption.
Governments must be future-looking and be prepared to ease society through the transition. Sovereign bonds will certainly benefit from this disruptive but disinflationary environment.
AI will be key to finding ways to redesign existing products so that they consume fewer materials, further reducing the demand for commodities, assuming everything else remains constant. Demand for commodities is hence unlikely to rise.
For other asset classes, the implications are less clear. We can expect robotics and technology industries to see sustained growth while there could be massive disruption in the auto and oil sectors.
Since the beginning of the year, with market volatility returned, we believe it makes sense to identify and invest on secular themes that have long-term growth potential, such as AI. We also see increasing investment demand from our ultra-high net worth clients in that respect.
Still, it is early days to tell who will be the ultimate winners. Therefore, we advise gaining exposure to AI through a list of stocks and structured products. Thanks to our Switzerland-based Indosuez AI experts with Asian insights from our Hong Kong and Singapore advisors, we have built dedicated advisory mandates on AI and Technology.
More specifically, our AI mandate is designed specifically to benefit from AI development in the market and covers numerous investment themes such as cloud, e-commerce and payments, digital advertising, software as a service, robotics, Internet of Things, cyber security, gaming, and virtual/augmented reality.
The portfolio now has shareholdings in 31 companies across all major regions and weightage based on a scoring system that takes into account liquidity, AI purity, valuation, technical, and consensus momentum. It can easily be customised to our clients' appetite and will soon be distributed via Actively Managed Certificates.
- The Singapore-based writer is head of markets, investment and structuring, Indosuez Wealth Management