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Megatrends: the opportunities ahead
Market Outlook

Megatrends: the opportunities ahead

Pictet has had a megatrend framework in collaboration with the CIFS, designed to be applicable to thematic equity portfolios.
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14 OCT, 2023

By Pictet Asset Management


The Pictet Group has presented a first report on the study "Megatrending - Opportunities Ahead", which reminds us of the importance of transforming megatrends into investment ideas that provide capital to business activities with long-term potential, which benefits the investor.

It draws on the views of more than 50 experts from finance and economics, including Pictet Group economists, strategists, senior investment managers, chief economists, CEOs, and founders of companies in robotics, clean energy, urban design, engineering, hospitality, and agriculture.

For a decade, Pictet has had a megatrend framework in collaboration with the Copenhagen Institute for Futures Studies (CIFS), designed to be applicable to thematic equity portfolios. It is a process that allows the systematic and empirical monitoring of its evolution. Currently, this framework consists of 21 megatrends, in six groups.

  • Technology and Science: Virtualization and dematerialization; Artificial intelligence and computing power; greater interconnectivity; Life Sciences and New Materials.
  • Society: Individualization and empowerment, Growing disparities, and Focus on health.
  • Economics: Specialization and complexity; Marketing, Service Economics, and Economic Growth.
  • Environment: Environmental quality, Climate change, Scarcity of resources; Biodiversity, and ecosystem services.
  • Demographics: Urbanization, Generational change, Population growth and migration.
  • Global governance: Geopolitical tensions, (De)globalization.

This first study exposes the causes, status, and investment opportunities in three of them: "Scarcity of resources", "(De)globalization" and "Service economy".

Resource scarcity: The global population and economy are growing, but the gap between supply and demand for materials, energy, water, and agricultural supplies causes shortages in many places, and efficiency solutions are required to decouple resource consumption from growth.  In the case of water, storage, treatment, and infrastructure management companies are attracting increasing interest, as well as those in leak prevention technology, use efficiency and recovery of water from unusual sources. Add to this precision agriculture, organic fertilizers, use of genetically modified crops, reduction of animal methane emissions, agricultural logistics, solutions to avoid food waste, and insect breeding and processing technologies. Demand for base metals and rare earth metals, energy storage, battery production and recycling, hydrogen infrastructure, and carbon capture technology will increase. In the forestry industry, wood-based solutions replace fossil materials. Even there are innovations in construction that are remarkable, with the reuse of demolition materials.

(De)globalization: Global trade has been losing momentum since the 2008 record, although the direction is unclear in investment and travel/migration industries, while there has been an increase in information and culture. At the same time, the interests of China and its allies and those of the US, Europe, and their friendly states are becoming less and less aligned. China's estrangement benefits Southeast Asian neighbors. In addition, the arms industry is a beneficiary of geopolitical tensions, while companies involved in cybersecurity take advantage of the fact that the Internet increasingly becomes a theater of war. If anything, higher production costs in Western countries limit the scope of mass relocation, but automation, artificial intelligence, and robotics are solutions. The industrial metaverse will allow organizations to optimize any process in the real world. In this sense, 'cobot' solutions, collaborative robots, will be in demand. In addition, companies must measure sustainable activities in their supply chain. Companies with exposure to mobile banking, especially in the developing world, are an excellent opportunity, as are decentralized finance startups.

Service economy: The service economy will continue to grow relative to industry or agriculture, especially in developing countries, which can avoid the capital and resource-intensive phase of industrialization. In addition, companies are increasingly combining goods with services to deliver more value. Emerging markets can leverage digital services to focus on services or end products. Therefore, education is emerging as a key factor, as is tele migration. There is a trend towards "everything as a service" with subscription business models, including "software as a service" and "platforms as a service" with cloud capabilities. In addition, mobile financial services are growing rapidly in countries with high proportions of unbanked populations.

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