Five supertrends shaping the investment landscape
They will fundamentally influence how investors navigate markets and allocate capital
AS WE exit the pre-pandemic investment regime characterised by steady growth and low inflation into a new era with greater dispersion and volatility driven by geopolitical fragmentation, we see five key supertrends reshaping the global investment landscape ahead.
These secular forces – the emergence of a new world order, the evolution of long-term capital allocation, the transformative power of artificial intelligence (AI), the pragmatic approach to climate change and the critical role of infrastructure – will fundamentally influence how investors navigate markets and allocate capital.
Supertrend 1: A new world order with fragmentation and higher inflation
The post-Cold War era of free markets and globalisation is giving way to a more fragmented world. Geopolitical tensions, rising populism and the search for security are redrawing supply chains and heightening inflationary pressures.
We see supply-chain reorientation and energy-transition costs resulting in a higher resting heart rate of inflation, which benefits companies with pricing power and real assets, such as commodities and real estate.
Long-dated US Treasury yields, meanwhile, are likely to settle at levels broadly higher than the 2.5-per-cent average that prevailed between 2008 and 2020.
Geographically, the United States appears better positioned to withstand geopolitical tensions than export-dependent economies such as Europe and Japan. Emerging markets with large domestic markets, such as India and Indonesia, also stand to benefit.
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Supertrend 2: Rethinking long-term capital allocation
We believe investors will evolve their approach towards long-term capital allocation due to economic and demographic shifts.
As the diversification benefits of traditional 60-40 portfolios wane in a higher-inflation environment, capital allocation to private-market investments will likely grow further.
Portfolios with allocations in alternative assets typically yield improved risk-reward, particularly as private-market assets such as private equity and credit also offer investors a broader range of opportunities, the chance to enhance value through operational improvements and enhanced diversification.
In addition, an ageing global population is reshaping the investment landscape and increasing demand for retirement income and healthcare technology.
This has significant implications for labour markets, as shrinking working-age populations could drive up wages and spur investment in automation and productivity-enhancing technologies.
Moreover, increased human longevity will likely reshape consumption patterns as older consumers tend to spend more on healthcare, leisure and experiences, which would benefit companies aligned with the evolving needs and preferences of an ageing demographic.
Finally, we anticipate more capital flowing into sectors leading the digital, automation and sustainability revolutions.
Data traffic will grow significantly ahead, which will require substantial investment, and the shift towards a sustainable economy will require scalable solutions in clean energy, energy efficiency and the circular economy.
Supertrend 3: AI as the next frontier
AI, particularly generative AI, is poised for exponential growth. Global spending on generative AI is forecast to surge from US$16 billion in 2023 to US$143 billion by 2027, said IDC.
This growth will drive significant investment in AI infrastructure, benefiting semiconductor manufacturers, data-centre operators and companies across the AI value chain.
Beyond the immediate beneficiaries in the semiconductor sector, we see potential in edge AI devices and a plethora of use cases including chatbots, virtual assistants, code generation, document processing, content generation and medical imaging.
Over time, we expect enterprise adoption to accelerate and more use cases to emerge as AI-related costs fall further. Investors should remain cognisant of risks, however, including monetisation challenges, technical issues and evolving regulatory landscapes.
Supertrend 4: Pragmatism prevails on climate change
Climate action is entering a get-real phase, as governments grapple with the realities of transition pathways, fiscal constraints and geopolitical friction. Rising politicisation of the green agenda, particularly in Europe and the US, may impact the pace of climate-related policies and investments.
Despite these headwinds, sustainable investing remains an important structural theme due to the significant funding gap for climate transition.
We favour established, profitable companies with exposure to clean energy and electric vehicles, as well as enablers of the green transition focused on energy efficiency and smart-grid infrastructure.
Supertrend 5: Building the way with infrastructure
Finally, there will be rising demand for infrastructure investment in the next five years, driven by the need to renew ageing assets, facilitate the energy transition and support the AI revolution. Smart grids, renewable power generation and data centres are key areas of focus.
Infrastructure investments offer attractive features for long-term investors, including inflation-adjusted income streams and tangible assets with long-term visibility. A diversified approach is crucial to mitigate idiosyncratic risks, though.
In conclusion, these five supertrends present both challenges and opportunities for investors. We believe it is timely to re-examine, re-think and re-calibrate preconceptions about how capital should be allocated, and what seeds to sow for future growth.
Those who navigate the evolving landscape ahead with careful risk management and a willingness to embrace new paradigms should find themselves well positioned for success in their investment journeys.
The writer is chief investment strategist at Bank of Singapore
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