The Six Megatrends to Watch for Successful Stock Market Investing
What are the promising short-, medium-, and long-term trends to watch? That’s the question all investors are asking themselves. Here are some answers.
To provide an informed answer to these questions, experts at the Swiss bank Pictet have been tracking 21 megatrends over several years to monitor how they evolve. But in its new report, Pictet goes a step further by transforming these megatrends into investment themes. Here are the three main ones identified.
The Scarcity of Resources
According to Pictet, the global economy and population continue to grow, but the amount of available raw materials is not increasing. Supply is failing to keep pace with demand, leading to shortages in certain areas.
This is true of water use efficiency: as the quality and quantity of available water decline, the volume of drinking water per capita is decreasing around the globe. Fortunately, the number of patents related to water recovery and treatment solutions has nearly doubled since 2000. Companies that develop leak-prevention technologies, such as the U.S.-based Xylem Group, offer exposure to this megatrend.
When it comes to smart infrastructure, it is now possible to catalog all the materials used in the construction of a new building. In the future, when these same buildings are demolished to make way for new ones, this information will make it possible to know exactly which materials were used during construction—and where. And this will be known even before demolition begins, which will greatly facilitate recycling and value recovery.
The world’s population will reach 10 billion by 2050. This growth will require a 70% increase in food production from 2007 levels. With this in mind, precision farming equipment promotes efficient land use and reduces waste. Up to 30% of the food produced never makes it to our plates. Solutions aimed at preventing production losses—such as AI-powered sensors capable of determining when a fruit or vegetable becomes overripe and needs to be processed into sauce or juice—will therefore see growing demand.
Insect farming, on the other hand, offers a solution to overfishing, deforestation, and pesticide use. In nature, insects feed on plant waste—such as fallen fruit—and turn it into soil. Fish farming currently produces one out of every two fish consumed. But fish farms consume 8 million metric tons of fish meal per year. Insect meal, made from byproducts of food waste, is the best alternative. The French company InnovaFeed, for example, is developing technologies for raising and processing insects for food.
Sustainable forests can replace fossil-based raw materials. In fact, many petroleum-based products can also be derived from wood. The Finnish company UPM-Kymmene is currently building a biorefinery in Germany that will produce wood-based biochemicals.
Production lines today operate at such a fast pace that it significantly complicates quality control efforts. As a result, a factory may produce poor-quality fabric for hours before the problem is detected. Machine vision cameras can detect problems within a minute, preventing significant production losses.
(De)globalization
Two trends are driving (de)globalization: the decline in global trade, and the misalignment of the interests of China and its allies with those of the United States, Europe, and their traditional political and economic partners. Companies know that relying on countries with which relations have deteriorated is risky and can disrupt their supply chains.
To speak of a true reversal of globalization would be an oversimplification, but the fact is that global trade (the sum of exports and imports as a percentage of GDP) peaked in 2008 and has been contracting ever since. The shift away from China is benefiting neighboring countries in Southeast Asia. Indeed, rather than completely repatriating their production, some U.S. companies have simply moved out of China. This is particularly true of Apple, which has relocated the production of its iPads to Vietnam.
Ongoing geopolitical tensions with Russia and China will benefit companies in the defense sector. While the war in Ukraine has led them to redouble their efforts, in the longer term, research into cyberdefense will require greater funding, against a backdrop of increasing cyberattacks. Israeli security startups, supported by the country’s high concentration of IT specialists, offer exposure to this segment.
In Indonesia, 90 million people do not have a bank account, but 74% have internet access via their cell phones. Companies involved in online banking services, particularly in developing countries, therefore represent prime investment opportunities, as do startups in the decentralized finance (DeFi) sector.
For a company, bringing its operations back home comes at a cost. Automation can therefore be a solution. Swiss manufacturing companies have led the way by automating everything possible to offset the high cost of labor (even compared to Europe). Collaborative solutions such as “cobots”—industrial robots designed to work alongside humans—will see growing demand.
The Service Economy
The service economy—the share of global value generated by services, as opposed to manufacturing or agriculture—will grow significantly, particularly in developing countries. In fact, it is already growing. In middle-income countries, the proportion of the workforce employed in the service sector rose from 35% in 1991 to 52% in 2019—a 50% increase. In wealthy countries, it rose from 64% to 74% over the same period.
Developing countries that succeed in expanding their service economies and integrating into the global economy (India, for example, where many companies are offshoring their IT operations) will be able to skip the stage of industrialization, which is highly capital- and resource-intensive.
