Group Corporate Communications, Pictet Group
Pictet’s ‘Megatrending – Opportunities Ahead’ study reminds us of the value of turning megatrends into investment ideas. That way investors benefit and long-term commercial endeavours that have the potential to positively advance society are supported with the capital they need to develop.
Pictet closely follows 21 megatrends to gain insights for a number of its investment processes. This inaugural study unpacks the causes, current state of play and investable opportunities of three of these megatrends: Resource Scarcity, (De)Globalization and Service Economy.
The study follows interviews with over 50 experts: investors, academics, scientists, urban designers, CEOs and founders of a range of businesses including in robotics, clean energy, hospitality, engineering and agriculture.
Some highlights of the study:
Resource Scarcity
The world’s economy and population continue to grow, but the quantity of available raw materials does not. Supply growth is failing to keep up with rising demand, creating pockets of scarcity.
For example:
Water efficiency: The quality and quantity of available water is decreasing. Available, usable water per capita is falling – across the globe. Fortuitously the number of patents for waste recovery and water resource management has nearly doubled since the year 2000. Businesses with leak prevention technology, such as US-based Xylem, give exposure to this megatrend.
Smart infrastructure: It is now possible to catalogue every material used in the construction of a new building. When those same buildings are dismantled in future it will be possible to know exactly what materials were used in construction – and where. This is before demolition has even begun, greatly easing recycling and potential recovery of value.
Resource-efficient agriculture: The world’s population will reach 10 billion by 2050. That calls for a 70 per cent growth in food production from 2007 levels. Precision farming equipment can bring efficient use of land and minimise waste. Up to 30% of food never reaches our plates. Food waste solutions will be in demand. One example is AI-driven sensors that determine when a fruit or vegetable is about to be wasted and should be repurposed – into sauce or juice. Insect farming offers a solution to overfishing, deforestation and pesticide use. In nature, insects exist to consume waste – turning rotten fruit into soil, for instance. Fish farming now produces one in every two fish consumed. But fish farms consume 8 million tonnes of fishmeal annually. Insect meal, produced by using by-products of waste, is the best alternative to this. France’s InnovaFeed develops insect breeding and processing technologies.
Timber: Sustainable forestry can replace fossil-based materials. Why? Because many of the products made from oil can also be made from a tree. Finnish forestry business UPM-Kymmene is building a biorefinery in Germany for this purpose.
Machine vision: Production lines have become so fast that traditional quality control cannot keep up. A factory might produce hours of flawed textile before the problem is spotted. Machine vision cameras can spot problems in a minute, avoiding huge wastage.
(De)globalisation
There are two aspects driving (de)globalisation. The first is declining trade. The second is the fact that the interests of China and its allies are becoming less aligned with the interests of the US, Europe and their blocs.
Companies recognise that relying on countries with which their government no longer has a good relationship for supplies is risky.
But it’s not as simple as a reversal of globalisation. The plain fact is that global trade (sum of exports and imports as proportion of GDP) peaked in 2008 and has fallen since.
For example:
South East Asia benefits: The shift away from China is to its southeast Asian neighbours. Some US companies have not fully re-shored production, but rather moved out of China. Apple is a good example when it shifted its iPad production to Vietnam.
Cyber Defence: As geopolitical tensions with Russia and China continue, defence companies will benefit. War in Ukraine has sent defence contractors into overdrive, but further out cyber security businesses will see more research funding as cyber warfare increases. Israeli security start-ups offer exposure given the country’s pool of cyber professionals.
Niche digitalisation: In Indonesia, 90 million people remain unbanked, yet 74 per cent have access to the internet via smartphones. Companies with exposure to mobile banking, especially in the developing world, are a prime opportunity for investment as are start-ups in the world of DeFi (decentralised finance).
Reshoring and automation: There’s a cost implication to reshoring. But automation is a solution. Swiss manufacturing companies have shown the way – automating everything they can to counter high labour costs (even for Europe). Collaborative solutions such as ‘co-bots’ where robots work alongside humans, will be in demand.
Service economy
The service economy – the share of world’s value generated by services as opposed to manufacturing or agriculture – is going to jump. Most notably in the developing world. This is already happening. The number of people employed in services in middle income countries grew from 35% in 1991 to 52% in 2019 – a rise of 50%. Over the same period services employment in rich countries ticked up from 64% to 74%.If developing countries can navigate this entry into the service economy and connect to the global economy (think India as an IT outsourcing destination) those same countries could skip the stage of industrialisation with its major capital and resource demands.
Read the full report.
