The geopolitical and global macroeconomic developments that have emerged in the last few years, from spikes in market volatility and fluctuating currencies to concerns over global trade and conflicting actions from governments, have created uncertainty for investors.
RBC says that while each of these factors may appear unconnected, from an investment perspective, “there are many that can be traced back to a number of ‘mega trends’ that are reshaping the world.”
The firm claimed technological transformation was “powering the fourth industrial revolution; the increasing power of the millennial generation will continue to influence business; a growing population will drive modernisation in food production and environmental conservation.”
The ‘mega trends’ were listed as:
1. Technology a key driver of investment opportunity
It is estimated that by 2020, 50bn devices will be connecting, sending and receiving data all around the world. Additionally, over the course of 2018, global spending on digital transformation technologies is expected to reach $1.3trn, an increase of 16.8% compared with 2017. With technological advancements in industries such as healthcare, food services, retail and logistics viewed as the catalyst for the fourth industrial revolution, technology stocks, however they are defined, will play a significant role in investor portfolios.
David Storm, head of multi asset portfolio strategy at RBC Wealth Management, said: “Technology is improving and data is increasing at exponential rates, disrupting the status quo. With the rise of a connected world already impacting organisations and industries, our view is that technology will provide a whole new set of investment opportunities.”
2. Millennial influence will shape the way companies operate
Set to inherit $4trn in wealth by the year 2020, millennials are big adopters of technology and are driving growth in the sharing industry. Many millennials are looking for firms that align their business objectives with a clear set of values; this generation will be a driving force behind the growth of Environmental, Social and Governance (ESG) policies, values and strategies across industries.
“Wealth managers are seeing real growth in both interest and investment in strategies that appeal to the sustainable, purpose-driven mind-set of millennial clients,” said David Storm.
He added: “More broadly, we see more emphasis on investing in companies that are committed to improving ESG; at the moment this is a less prominent requirement for investors, however ESG is gathering momentum as the next generation become more actively engaged with their portfolios.
3. Increased longevity will boost healthcare sector and those that cater to ‘Silver Society’ demands
Medical advances are leading to greater longevity, with people increasingly living well into their eighties and nineties. This increase in an ageing population has long influenced society and been an important talking point for policymakers when determining the financials of a country. While the elderly may account for a considerable financial draw on family, business and government, they also represent a significant investment opportunity. With the over-80 age group expected to triple over the next 35 years, healthcare sectors and pharmaceuticals, are likely to account for a greater share of investment portfolios.
4. Food revolution and emerging technology to underpin investment in food production and distribution
As sustainability becomes more important for society and traditional dietary patterns shift, agribusiness sectors are facing unprecedented demand to deliver an increasing volume and variety of products. Combined with growing global populations and an expanding middle class, the production of cereals, meat and other food commodities will have to increase by around 70% to keep pace.
5. Demand for water is expected to grow 55% by 2050 opening a new market for investors
Only 0.007% of Earth’s water is fit for consumption. Factors including population growth, pollution, wastage and rising temperatures are putting mounting pressure on this scarce and vital resource. The number of people in water-stressed regions also continues to increase. Water, currently a $600bn market, is poised to grow to $1trn within the next two years, providing ample opportunity for investors.
6. Waste management industry expected to grow alongside urban sprawl
Around 8.3bn metric tonnes of plastic has been created in the last sixty years. As the number of city residents, who generate twice as much waste as their rural counterparts, increases, we are currently on a path to more than triple our waste production. Businesses and governments will have to increase waste management and recycling solutions to cope. With options including waste collection, landfill operations and transfer and recycling, investment opportunities are plentiful.
7. Technological advances lead to new gaming possibilities
As the ‘Nintendo generation’ enters the market, 2.2bn worldwide players are expected to generate $108.9bn in gaming revenues, 87% of which is accounted for by digital revenues. With the advancement of mobile phone technology and the potential of 5G networks, mobile gaming is expected to account for over half of the total games market, and the emergence of virtual and augmented reality is likely to grow the market even further.
8. A middle class population requires revamping of infrastructure; opportunities for Public Private Partnership (PPP)
An estimated $5trn in infrastructure investment will be required globally before 2030, to improve or replace transportation, power, water and telecommunications many of which have existed since the World War II era. Combined with the requirements of a growing middle class that demands convenience, better housing, commercial space and mass transit systems, this is an opportunity for investors that is likely to net long-term, positive results.
9. Renewable power technologies introduce solutions to environmental concerns
Many countries, under the COP21 Paris Agreement, have agreed to participate in efforts to combat pollution. Alongside governmental efforts to increase green technology, global investment in energy efficiency increased to $231bn in 2016. As companies embrace the need for cleaner energy sources, investors have the opportunity to benefit from rapidly advancing technologies and evolving markets focusing on green energy.
Mr Storm said: “As the world becomes increasingly aware of green energy solutions, companies are adopting these technologies, either due to government regulations or by their own accord. In the US, 69% of corporates are actively now pursuing solar energy contracts as their power source.”
He added: “This is already driving substantial growth in industries, from solar power and electric vehicles to renewable power plants. Each of these industries is small compared to the incumbent traditional industry they are beginning to replace, but their growth rates are much higher. All of these areas represent meaningful ways to invest in the future economy.”