5 megatrends that will shape global investing

By Morningstar |  03-10-18 | 

BlackRock has identified 5 megatrends which are going to shape the way we live. They are structural trends that are going to be playing out for the next 30 years or so.

Megatrends are powerful, transformative forces that could change the global economy, business and society – have the potential to affect all of our personal lives and influence the outcome of our investment decisions.

Some megatrends have been with us for many years; others are at an earlier stage in terms of their impact on the world.

1) Changing economic power

The growing economic strength of emerging economies, such as China and India, is changing the balance of power in the global economy. In the February 2015 report PwC predicts that, by 2050, six out of seven of the world’s biggest economies will be emerging economies.

Two centuries ago Napoléon Bonaparte said, “China is a sleeping giant… when she wakes, she will move the world.”2 How right he was. Only 15 years ago, China’s economy was one tenth the size of the US economy.

Despite some challenges for the Chinese economy driven by debt levels and property market valuations, among other things, the potential long-term growth of the Chinese economy relative to the US and Europe looks likely.

China is already on a path to usurp the US as the world’s leading superpower. When it does, political agendas, global trade and the sphere of influence are likely to shift towards Beijing from Washington. China could become the new world superpower by 2030.

  • The political sphere of influence could shift from Washington to Beijing.
  • Businesses could become more powerful than countries
  • We’re all going to need to talk Mandarin

2) Climate change and resource scarcity

An expanding global population is increasing the demand for energy, food and water, putting pressure on finite global resources. Demand for fossil fuels, in particular, leads to higher carbon emissions and a more volatile world climate. The United Nations World Water Development Report 2014 estimates that global energy demand will increase by one-third over the period to 2035, with the majority of that demand coming from China, India and the Middle East.

  • Western diets will become increasingly plant-based
  • Renewable energy will fully replace fossil fuels
  • Technological advancement will yield man-made materials

3) Demographics and social change

The increasing age and size of the world’s population is fundamentally changing the needs of its inhabitants. In the 2015 revision to its World Population Prospects report, the UN Population Division expects there will be an additional 1.2 billion people on the planet by 2030. However, the distribution of those one billion people will not be equal across age groups or regions – 30% of the increase is predicted to consist of those aged 65 or over; by 2050, 50% of population growth overall is likely to come from Africa.

  • Substantial healthcare spending will create huge opportunity in this sector
  • Robots will replace people to plug the labour gap
  • People will need more money to fund a lengthy retirement

4) Technological breakthrough

We are in the midst of a technological revolution that is having a profound impact on the global economy, the extent of which is yet to be truly understood. In January 2015 the Huffington Post spread the news that if Facebook were a country, it would be the most populous in the world - before China.

  • Traditional consumer goods produced by technology companies
  • The global economy should grow as the world becomes more productive
  • Technology will enable solutions to climate change and population problems

5) Rapid urbanisation

In a 2014 report, the UN Population Division predicted that by 2050 about two-thirds of the world’s population will reside in cities.

As strong population growth puts increasing pressure on the infrastructure and social welfare of cities, its forecast that New York, Beijing, Shanghai and London alone will need $8 trillion in infrastructure investments over the next 10 years.

  • A whole new city infrastructure could be required
  • Car ownership will become obsolete as autonomous, summon-able cars become mainstream
  • The healthcare system will need to change to cope with demand

There will be a shift in investor preferences

In less than a generation, emerging markets and developing economies have gone from being producers of goods and trading hubs for developed countries, to becoming an important destination for consumer goods and services in their own right. They now account for nearly 80 percent of global economic growth, and 85 percent of growth in global consumption – more than double their share in the 1990s.

Traditionally investors preferred the relative safety of developed economies, and particularly the US, believing they offered longer-term sustainable growth potential. Emerging markets offered tactical opportunities that came with increased risk, but potentially greater reward. We’re already seeing a shift towards emerging markets in investment portfolios and this is likely to accelerate as China makes equities more accessible to foreign investors and improves their global trading policies.

 You can access the entire report here.

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