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- The US investment giant BlackRock believes five megatrends will drive growth for some companies and assets over the next decade.
- The trends include AI, sustainable energy, geopolitical tensions and ageing populations.
- BlackRock believes this calls for thematic investing.
- For more financial news, go to the News24 Business front page.
Over the past two decades, investors have seen massive returns from companies that benefited from the internet or advances in communication, particularly smartphones.
"These technologies have brought massive change to the world, bringing the sum total of humanity's knowledge to our fingertips," Omar Moufti, head of index thematic strategy at the US investment group BlackRock, told the Investment Forum in Cape Town this week.
"But many of these forces that have driven advances and driven returns in markets are reaching exhaustion."
Now, investors are looking towards the next big thing and BlackRock has identified five megatrends that it believes will drive above-average growth for companies that can benefit from these developments over the next decade.
It believes this calls for "thematic" investing – in other words, not investments focused on specific sectors and countries, but on companies and other assets across industries and regions that will benefit from larger trends.
"We see asset returns being shaped by big structural forces," said Moufti. "These are not far into the future: We believe many are already starting to drive returns and corporate profits. So, we see these mega forces as high probability events. And I think it makes sense to be leaning into these events."
BlackRock's five megatrends for investors over the next decade are:
Demographic divergence
There are now more elderly people in the world than young children, and the last of the Baby Boomer generation is now reaching retirement age, says Moufti.
This will have a huge impact on companies that are dependent on growing populations and greater consumption in some areas of the world.
But there are opportunities, including investing in companies that are focused on innovations around ageing populations, particularly in healthcare.
Digital disruption and AI
Artificial intelligence has already started to drive returns, but only for a limited number of companies. AI will start to benefit more companies and as it brings risks, it will also bring opportunities.
A case in point is digital security. AI is expected to make it much easier for hackers to access information online. But at the same time, AI will also give cybersecurity companies large efficiency gains, says Moufti. Currently, high salaries and a lack of skills in the industry have been among the biggest problems these companies are facing. But AI will allow them to significantly enhance their coding and reduce costs, which will improve their margins.
BlackRock also sees advances in communication technology, the metaverse and digital entertainment that can help drive returns among certain digital firms.
Geopolitical fragmentation and economic competition
As global tensions escalate and boil over, the era of the peace dividend (where countries could reallocate money from defence budgets to other spending) – which the world has enjoyed since the fall of the Berlin Wall - is now truly over, Moufti told the conference.
A multipolar world is taking its place, where countries are increasingly at odds and competing with each other.
"[This is] rewiring the global supply chain that we've created over the past 30 years or so, which has tremendous implications for the products that are consumed and how we manufacture."
Food, water and border security will become increasingly important in a more conflict-ridden world, while companies focused on cybersecurity - amid the growng threat of cyber attacks - will also benefit.
Future of finance
BlackRock believes the world is coming to the end of a 40-year period of declining cost of funding, and that interest rates will remain relatively high. It expects that, increasingly, capital markets will take a bigger role in financing. It also sees blockchain and fintech to remain important drivers.
Transition to a low-carbon economy
To achieve a carbon-neutral world, a tenfold increase in the amount of solar and wind capacity will be required. This is a shift that won't bring linear growth - it will be exponential, BlackRock believes.
Solar equipment producers, hydrogen, fuel cell and electric vehicle manufacturers, as well as the producers of essential metals for the transition should drive investment returns.
News24 is a media partner of the Investment Forum.
