Megatrend Investing
Megatrends are wide-reaching and are established by a combination of social, economic, environmental and technological trends that develop over time and define the world we live in now and in the future.
We have identified seven megatrends that we believe will define the world in the years to come. We also believe they will have a profoundly impact on financial markets. They are Climate Change, The Era of Disruption, Changing Demographics, Last Stages of the Debt Supercycle, Rise of the East, Globalisation 2.0 and The Rising Gap between Rich and Poor.
Some of those megatrends are already well established, whereas others are earlier in their life cycle. For example, The Era of Disruption which relates to the growth in disruptive technologies has been an important feature of financial markets dating back to the late 20th Century, while Globalisation 2.0 is a phenomenon of recent times.
We believe each megatrend is almost certain to play out. Over years of following them closely, our strength comes from our understanding of them and how to take advantage of the investment opportunities that arise from them. Since these megatrends span across borders and sectors, to us, megatrend investing means investing globally and across asset classes.
Climate Change
The climate is changing rapidly. Sea levels are rising with large parts of the world suffering from frequent flooding. Meanwhile, other parts struggle from severe drought with access to freshwater becoming a major problem.
According to WWF, if our planet warms by more than 2ºC, most ecosystems will struggle. The war against climate change is gathering pace with governments all over the world intent on phasing out fossil fuels and becoming Net Zero from as early as 2050.
In order to achieve these targets, carbon capture must intensify, energy storage capacity must improve, and so must energy storage technologies. The climate crisis is an existential issue for humanity and as such is the most influential megatrend in shaping our future. We believe the scale and severity of the challenge will pave the way for some of the greatest investment and impact opportunities in the decade to come.
Links to UN Sustainable Development Goals:
Changing Demographics
The end of World War II brought with it the biggest baby boom ever experienced. Now, 80 years later, most baby boomers have retired, but the retirement wave won’t come to an end any time soon.
The number of retirees per 100 working people is 30-40 in most OECD countries today. By 2050, that number will have risen to 80 in the worst affected countries.
Aging populations bring with them changing spending patterns, greater demand for healthcare and different preferences as far as financial assets are concerned. Take for example those diseases that mostly affect the elderly. Demand for treatment of those is set to rise rapidly, creating attractive investment opportunities in the healthcare sector.
Links to UN Sustainable Development Goals:
Last Stages of the Debt Supercycle
Debt supercycles are very long in nature – on average c. 65 years. Our current supercycle began as World War II ended and much reconstruction was required.
As supercycles mature, more debt is required to grow GDP than at the start. At the end of a typical debt supercycle, $1 of added debt only results in $0.25 of GDP growth. China has now reached this level and the US is very close. Furthermore, as supercycles mature, productivity declines, which have meaningful implications for financial markets.
Links to UN Sustainable Development Goals:
Rising Gap Between the Rich & Poor
Whilst the wealthiest section of society continue to get wealthier, the gap between them and the bottom section continues to widen.
This has resulted in a growing number of frictions in society and a rise in populism. Politics has changed in many countries as a consequence with populists offering superficial solutions to complex issues.
In terms of the financial impact, populists are almost always big spenders of public money. A rise in populism could therefore lead to rising inflation over time.
Links to UN Sustainable Development Goals:
Rise of the East
Currently, there are 2 billion people in Asia who live a middle class life. This number is expected to grow to 3.5 billion by 2030.
A growing middle class means rising living standards and contributes to greater economic stability. One can therefore expect to see greater demand for healthcare, education, higher quality food, etc., across many Asian countries in the years to come.
The economic development and urbanisation that is occurring in many Asian economies is creating investment opportunities in green and industrial metals as well as building materials. Furthermore, with the effects of climate change likely to have an outsized impact on Asian countries compared to the rest of the world, opportunities in climate change mitigation and prevention have also emerged. While China is one of the biggest forces in Asia, many of these trends are playing out in other Asian countries including India, Indonesia and Vietnam.
Links to UN Sustainable Development Goals:
Era of Disruption
Disruption is nothing new. Incumbent businesses have been disrupted ever since the beginning of the first industrial revolution in the second half of the 18th century, but the digital revolution has definitely increased the pace of disruption.
New and innovative technologies like AI, IoT and robots will only intensify the rate and magnitude of disruption.
While likely to improve efficiency and productivity in the long run, the emergence of disruptive technologies can replace millions of jobs. However, it is important to note that disruption is not only about technology – look at how urbanisation is disrupting entire societies.
Links to UN Sustainable Development Goals:
Globalisation 2.0
Globalisation, as we know it, is changing. While we don’t believe it has gone into reverse, it is clear that certain elements of globalisation of the past are changing quite dramatically.
The Global Financial Crisis (GFC) played an important role in creating disunity and fragmentation in the world after almost three decades of globalisation. The political stature of Donald Trump and the outcome of the EU membership referendum in the UK are examples of this trend.
Other geopolitical events, including Russia’s invasion of Ukraine, the crisis in the Middle East and tensions between the US and China, are examples of a more hostile international arena with meaningful implications for financial markets. While a slowdown in international trade generally has adverse effects on economic growth, these dynamics create opportunities elsewhere, particularly in commodity markets.
Links to UN Sustainable Development Goals:
