Megatrends: Tomorrow's Investment Opportunities
Megatrends have been part of our history for millennia. From formation of the first cities in Mesopotamia to the invention of the printing press, they span a wide range of themes that are associated with our social and economic evolution.
Megatrends can last for decades or longer and they can be the result of several factors such as leaps in technology, geopolitical changes or even climate change. Sometimes their effects unfold slowly and only get noticed much later, but they have usually a great impact.
Megatrends have Become More Investable
A change in the rate of growth can often go unnoticed, but there are two reasons why investors should not ignore megatrends. The first is that the pace of technological diffusion has vastly accelerated relative to a few years ago. Ideas traveling faster and scale economics have contributed to this fact. For example the telephone, achieved coverage of 90 percent in 95 years, while cell phones took just 19 years to reach a similar level of coverage. The second reason is that global megatrends have become more investable: the market value of equities, the asset class that can best give exposure to megatrends, has approximately doubled as a share of global GDP since the late 1980s, and now stands at around 70 percent of GDP.
Three Major Pillars of Change
Megatrends will continue to have a profound impact in our society and change will likely be driven by three major pillars. The first of these is demographics, where we have already seen the doubling of the global population since the late 60s and the unprecedented degree of urbanization. Projections show in the next two decades global population will rise by 1.3 billion. This rise in population will require investments in infrastructure as well as further innovation in agriculture, healthcare and care services.
Shifting the Balance of Power
As well as enjoying more favorable demographics, emerging markets are becoming wealthier via their increased integration to the global economy. According to the Credit Suisse Global Wealth Report 2011 the middle and base segments of the wealth pyramid, which are dominated by emerging markets, account for 41 trillion US dollars or 18 percent of global wealth. This has led to a relative shift in the balance of power between the ‘old' economies of Western Europe, America and Japan, and emerging economies like Brazil, China and India. The trend towards a multipolar world has accelerated as a result of the Credit Crisis. Today, emerging markets are not only hubs of production, but are also accounting for a greater share of consumption than the US.
Humans' Ecological Footprint Set to Exceed Two Planets in the Near Future
The rapid economic development of the past few years is exerting great pressure on resources and the environment. It is estimated that humanity uses ecological services 1.5 times as quickly as Earth can renew them. The market economy is one important driver of sustainability, as resource scarcity is already making recycling and the use of alternative energy more economically viable. However the costs of factors that degrade the natural environment like pollution are not always observable, as their effects take time to feed into the production process. In this area major developments are yet to be made.
Investors Should Not Ignore Megatrends
From the point of view of an investor, megatrends are more relevant than ever. They offer new sources of growth in certain industries and they cause the demise of others. Slowness in adopting new technologies in fear that they will cannibalize existing products will lead new players to emerge, leading to losses in firms that rely on older technologies.
Although the risks of not adapting quickly to new market conditions are high, some early entrants also do not survive. Industries that are subject to rapid changes often go through boom-bust cycles (see chart). The survivors in these new industries have potential to reap the benefits of maturing technologies, as greater concentration leads to higher profitability. It is here where we see tomorrow's investment opportunities.
- Phone: + 56 22 616 0600
- Alternatively, you can use our contact form, and we will be glad to contact you.