Four megatrends that will shape investing in the years to come
Powerful, long-term changes in the global economy and global politics are underway in the world right now. And these changes have implications for investments. Here are four megatrends that are shaping our future world.
What’s a megatrend?
BlackRock, the world’s largest fund manager, with some $9.5 trillion of assets under advice, describes megatrends as:
powerful, transformative forces that can change the trajectory of the global economy by shifting the priorities of societies, driving innovation and redefining business models.
They explain further:
They can have a meaningful impact not just on how we live and how we spend money, but also on government policies and corporate strategies.
In fact, there is broad agreement among the investment community on the megatrends shaping our future world. Here are four of them.
1. Climate change and the energy transition
The move to reduce dependence on fossil fuels, build renewable infrastructure is underway – and will become increasingly urgent.
One of the biggest implications is for new infrastructure, from adapting for climate resilience, to electrification on a massive scale, and creating a less wasteful, circular economy.
This will require large quantities of capital, invested over many years. At the same time, as the last eighteen months have shown, energy security is a vital concern, and big oil producers will continue to be busy producing existing reserves for many years to come.
Read more on investing in net zero.
2. Geopolitics are shifting
The world order most adults in Ireland have known all their lives is under threat. There’s reduced appetite to solve problems through global institutions, and a breaking apart of economic links built over many years. In the wake of Russia’s invasion of Ukraine, it’s possible to imagine a world divided in two, politically and economically, for the first time in three decades.
This is affecting western companies’ sales. For example, Nvidia, the artificial intelligence chipmaker which is a stellar stock market performer this year, has been hit by a US ban on certain chip exports to China. It’s driving a re-evaluation of the ethics of investing in defence and security. And it heightens the political risk of investing in some emerging markets – above all China.
3. Changing demographics
Big adjustments are underway in the demographic shape of the world. By 2030, 1 in 6 people in the world will be aged 60 years or over, according to the World Health Organisation. We’re living longer, and fertility rates are falling.
The immediate need that creates is demand for healthcare. We’ll need more care – and more machines to do it, given the proportion of old to young people.
For investors, there will be opportunities in healthcare delivery as well as drug development and biotechnology, particularly focused on older consumers.
What’s more, the location of the world’s population is shifting. The population of sub-Saharan Africa is likely to double, while the population of Europe is likely to shrink, according to the UN. An increasing proportion of the global population is urban. And international migration is on the rise.
That creates questions about the geographic regions to which investors should deploy capital, and a likely need to increase the emphasis on investing into emerging markets.
4. Digitalisation and disruptive tech
Technological disruption is nothing new – and it seems likely to continue. There will be false starts (remember the metaverse?) and negative impacts as well as good ones. But tech is here to stay.
The next wave of tech is likely to be less focused on consumer gadgets. The real change seems set to come in automation, artificial intelligence disrupting existing business models, and increasing demand for digital infrastructure such as cloud services and communications networks.
Existing big tech, knowledge-intensive equipment suppliers, and businesses which can drive up margins by intelligent adoption of innovation look set to be the winners.
It’s likely the next ten years will look quite different from the last. These megatrends will be a large part of the reason why.