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Global Investor Focus
InnovationIn Credit Suisse's latest issue of 'Global Investor Focus', analysts and external specialists examine the subject of innovation. The interaction of new technologies, demographic trends and the opening up of global markets are changing the way innovation affects economic value creation. Nanotechnology and alternative energies are key drivers of innovation that are creating new growth areas which span different industries. This has prompted the analysts at Credit Suisse to screen a wide range of sectors worldwide for innovative business models, to identify major trends and to examine which companies offer suitable longer-term opportunities for investors.
Innovation is both a component and a driver of economic growth. Most of the innovations that promote this growth and create new business opportunities focus on technologies which, in turn, generate other technologies. The recent acceleration of economic growth in the US illustrates the impact that technological innovation has on the economy's growth rate. The analysis in the latest issue of 'Global Investor Focus' reveals that innovation-based investment opportunities are now more numerous than ever.
In collaboration with prominent authors from academic circles and the media, Credit Suisse has arrived at three conclusions: 1) The information revolution is still in an early phase, which suggests that further stock market growth is likely provided that valuations remain reasonable and corrections occur solely as a result of short-term increases and decreases in risk appetite and liquidity; 2) Investors should focus on those companies that are not only producing pure product innovations but are, at the same time, also improving their processes and organization; 3) Companies that are gearing their business models to the purchasing power of consumers at the bottom end of the wealth pyramid, as well as those that are supplying niche markets and marketing mass-produced goods that can be customized, are likely to remain lucrative for investors in the long run.
Nanotechnology: A Key Driver of Progress
Technological advances often lay the foundations for the development and employment of innovative products and services. Nanotechnology is therefore bound to emerge as one of the main drivers of progress. As a technology that spans many industries, nanotechnology fosters innovation in a wide variety of value chains, such as in the consumer electronics, healthcare and power generation sectors.
Even though this key form of technology is still in an early stage of development, the analysts at Credit Suisse consider it sensible to conduct a precise analysis of the potential that nanotechnology-influenced trends hold in store for investors. Many industry and business experts expect the market potential for nano products to reach trillions of dollars in a wide range of sectors over the next 10 to 15 years. The energy storage and solar power sectors in particular already offer investment opportunities that will benefit from the expected nano evolution. For instance, the start-up firm Altair Nanotechnologies is already utilizing nanotechnology to develop more efficient, lighter and more quickly rechargeable batteries.
A Host of Important Fields of Innovation
New technologies, globalization and demographic trends are opening up fields of innovation and fueling growth in a vast range of industries. The analysts at Credit Suisse have pinpointed a variety of opportunities for investors who wish to participate in this growth potential.
The increasing deployment of artificial intelligence in mass-produced goods and the resulting market-readiness of robotics should drive the further expansion of the market for robots. The iRobot company, which became the first-ever dedicated robotics firm to go public in November 2005, has already sold two million household cleaning robots in Japan. Cost-efficiency considerations can also lead to the development of innovative business models; in the semiconductor industry, for example, the outsourcing of production capacity has enabled companies to concentrate more on designing chips and to delegate the manufacturing process to other firms.
In the healthcare sector, numerous companies have made progress in researching Alzheimer's disease in recent years and have built up a promising pipeline of innovative products. In addition, the market for fertility treatments is destined to grow at an above-average rate because an increasing number of married couples are delaying starting a family until they have completed their studies and established their careers, which means that women are having children later in life.
New client needs and lifestyle changes have also generated increased demand for personalized service and customized product offerings in the consumer goods sector. This trend has made its way into the toy manufacturing industry as well, as examples from the US impressively illustrate. Mattel, for instance, has developed customizable dolls that children can modify in line with their own preferences.
In the food and beverage industry, companies operating in the health and wellness, premium products and convenience food sectors possess growth potential. Continual innovation has enabled Lindt & Sprüngli to develop into the world's leading maker of premium chocolate, and the bakery goods company Hiestand is likely to continue profiting from the convenience trend.
Vibrant economic growth in emerging countries is creating shortages in the existing education infrastructure in some areas, which has prompted private suppliers to swing into action. In the global market for education companies, Credit Suisse therefore sees promising investment opportunities that should continue to be bolstered by demographic trends.
Innovation Activity in the Financial Sector
The Kyoto Protocol of 1997 proposed tradable emission certificates for CO2. As a result, investment bankers, including Credit Suisse, have begun to establish facilities for trading these certificates, as well as to develop and sell structured products on this basis. The advent of CO2 certificates has also led to the founding of new companies such as EcoSecurities that specialize in trading emissions certificates. The replication of hedge fund returns represents another innovation in the financial sector. In the alternative investments segment, quantitative methods and products have been developed to synthetically replicate sophisticated hedge fund strategies. Such products make it possible to reach a broader investing public, the liquidity is much higher, and the costs are considerably lower compared to conventional hedge funds.
Innovation as a Key Growth Driver in Asia
To ensure they can continue to compete successfully in the global marketplace, a number of Asian governments have launched programs aimed at fostering innovation. Japan, which is recognized as a pioneer in the field of innovation in Asia, wants to focus on life sciences, information and communication technology, environmental sciences and nanotechnology. China intends to increase government spending on science and technology by 20% as part of its five-year plan (2006 - 2010), largely in an effort to develop renewable energies in order to reduce the country's dependence on imported crude oil and to diversify its energy sources. Global warming is also increasing the importance of alternative energies. Credit Suisse has already highlighted investment opportunities in this area in a number of publications and launched the Credit Suisse Global Alternative Energy Index in early 2007.