Pictet Group has published a new study entitled ‘Megatrending – Opportunities Ahead’ designed to focus on the value of turning megatrends into investment ideas. The firm writes that this enables investors to benefit and companies to get the capital they need to develop.
Pictet follows 21 megatrends as part of its investment process. The inaugural study unpacks the causes, current state of play and investable opportunities of three of these megatrends: Resource Scarcity, (De)Globalisation and Service Economy.
The study interviewed 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.
The world’s economy and population continue to grow, but the availability of raw materials does not. Supply growth is failing to keep up with rising demand, creating pockets of scarcity.
Water efficiency: The quality and quantity of 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 buildings are dismantled in the future, it will be possible to know exactly which materials were used in construction and where. This is before a demolition has even begun, so this can greatly ease recycling and the potential recovery of value.
Resource-efficient agriculture: The world’s population will reach 10 billion by 2050, which calls for a 70 per cent growth in food production from 2007 levels. Precise farming equipment can enable an efficient use of land and minimise waste. Up to 30 per cent 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, for example, 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 eight 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 flawed textile for hours before the problem is spotted. Machine vision cameras can spot problems in a minute, avoiding huge wastage.
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, which their government no longer has a good relationship with, for supplies is risky.
But it’s not as simple as a reversal of globalisation. Global trade (the sum of exports and imports as proportion of GDP) peaked in 2008 and has fallen ever since.
Southeast 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. A good example is when Apple 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 re-search 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 by 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.
The service economy, the share of the world’s value generated by services as opposed to manufacturing or agriculture, is going to jump most notably in the developing world and this is already happening. The number of people employed in services in middle income countries grew from 35 per cent in 1991 to 52 per cent in 2019 – a rise of 50 per cent. Over the same period, services employment in rich countries increased from 64 per cent to 74 per cent.
If developing countries can navigate their entry into the service economy and connect to the global economy (think India as an IT outsourcing destination), they could skip the stage of industrialisation with its major capital and resource demands, Pictet concludes.