These “mega forces“ are those areas where the global asset manager feel will affect investing now and in the future as well as change the long-term growth and inflation outlook. They are also poised to create big shifts in profitability across economies and sectors.
These are:
• Demographic divergence
• Digital disruption and artificial intelligence
• Geopolitical fragmentation and economic competition
• Future of finance
• Transition to a low-carbon economy
The asset manager, which has US$9.4 trillion in assets under management, then elaborated on how it is utilising these mega forces into investment portfolios.
Demographic divergence
Focusing on the split between ageing advanced economies and younger emerging markets, opportunities exist in areas like healthcare, real estate, leisure and companies that offer products for seniors. It also gave the example of Japan where the working-age population has been shrinking since 1994, which has presented challenges for the country’s economic activity.
Digital disruption
Digital disruption focuses on companies that are pivoting their business models to technology as well as chipmakers, AI technologies and infrastructure.
“We see a multicountry and multisector AI-centered investment cycle unfolding that we think will support revenue and margins. On a six- to 12-month view, we are overweight the AI theme in developed market equities.
“The biggest investment impact may come from AI’s interaction with other tech and mega forces. We believe significant investment will be needed to build out the infrastructure needed to fully harness AI.”
Geopolitical fragmentation and economic competition
The asset manager warned this is a difficult mega force to benefit from given the geopolitical risks in emerging markets. However, there are opportunities in areas such as technology, clean energy, infrastructure and defence prompted by industrial and protectionist policies.
“Countries like the Gulf oil states, India, Brazil, Vietnam and Mexico have valuable resources and supply chain inputs. We think they will align based on national interests, further rewiring supply chains and industrial policy.”
Future of finance
This mega force focuses on a fast-evolving architecture that is changing how companies and households use cash and seek returns driven by regulatory shift and the end of low-interest rates.
“Banks can no longer rely on deposits as the cheap, reliable source of funding they once were. We think banks will further rein in lending, meaning companies are likely to turn to the capital markets, private lending and other non-traditional sources of credit.
“Fintech innovation in payments, digital currencies, tokenisation of assets and AI are likely to play a key role in how the financial system, regulation and policy evolve – and who the likely winners will be.”
Transition to a low-carbon economy
The final mega force focuses on the reallocation of capital within energy systems, which will impact investments in clean energy, infrastructure, electric vehicles and key minerals. The speed of the transition will vary between developed and emerging markets, depending on the cost of capital and energy demand, which will result in an uneven transition, it said.
“We see faster transitions in developed markets than emerging markets because of lower costs of capital, a greater share of easier-to-decarbonise sectors and more stable total energy demand.
“Emerging markets are pivotal to the global transition to a low-carbon economy, but face a shortfall in investment relative to developed economies. Reforms to plug that shortfall could present both opportunities and risks for investors, in our view.”
