Beyond the daily news cycle, with all its volatility and noise, there are underlying trends that shape investment and asset allocations. Credit Suisse has identified what those trends are, and why they matter.
Credit Suisse argues that “supertrends” such as anxiety about unemployment and inflation have overtaken worries about Covid-19, according to the Swiss bank’s recent overview of big themes driving investment over the long term.
“While Covid-19 remains a worry for many people, it now ranks below concerns about poverty, social inequality and unemployment. Businesses, as well as investors, have an important role to play in finding solutions. The recent spike in inflation has ushered in more challenges to affordability,” the bank said, outlining its latest “supertrends” report.
“Although short-term catalysts tend to favour some supertrends over others, we want investors to look beyond short-term sentiment and financial market volatility. The supertrends offer an opportunity to help investors reach their financial, societal and environmental goals. As more and more investors move in this direction, we believe our supertrends are here to stay,” Michael Strobaek, global chief investment officer at Credit Suisse, said.
These themes are mapped on the 17 United Nations’ Sustainable Development Goals.
The bank said that Asia “has been and continues to undergo momentous structural change – like ageing populations and a booming middle class – and the supertrends are highly relevant.”
Credit Suisse said that the climate change supertrend is important for the Asia-Pacific region – the World Bank estimates that a 1 metre rise in sea levels could displace 37 million people, of which 23 million are from China alone. A 3 metre rise would affect 90 million people in the region and 52 million in China.
“We are fast running out of time to contain climate change’s extent and consequent impact. A key determinant will undoubtedly be China and its seriousness about implementing its ambitious carbon neutrality targets,” John Woods, chief investment officer, Asia-Pacific, Credit Suisse, said.
Besides the “anxious societies” supertrend, other big themes are:
-- Infrastructure: It looks as though 2022 will be the start
of a multi-year infrastructure boom as government spending for
new infrastructure programmes kicks off in the US and Europe, the
bank said. Most of the spending is slated to go to
transportation, the energy transition and communications
infrastructure. Inflation tends to be positive for the
infrastructure sector because companies in the transportation and
regulated utilities industries have price escalators (linked to
the consumer price index or a sector-specific measure of
inflation) embedded within their contracts;
-- Technology: Starting in November 2021, technology stocks have repriced to reflect a higher interest rate world, as well as the fact that the very high growth rates during the pandemic will not be sustainable in future. Yet the digital revolution still has far to go, with new catalysts such as the metaverse giving impetus to this trend;
-- Silver economy: Central to the silver economy supertrend lies the projection that the world’s senior population will double to more than two billion by 2050. This shift will create demand, but also unearth challenges that call for innovative solutions – in healthcare, insurance and consumer and property markets;
-- Millennials’ values: Supply chains and consumption trends have yet to return to normal after the Covid-19 crisis, creating a volatile consumer environment in the short term. But the long-term trends are solidly anchored. For example, the young generation will integrate simulated digital environments into everyday activities; and
-- Climate change: Looking at short-term developments in this area, the recent increase in energy prices should act as a catalyst to cut the world’s dependence on fossil fuels for electricity production and transportation. The global food system, responsible for well more than 20 per cent of global greenhouse gas emissions (GHG), is also in the process of reducing its carbon footprint and offers long-term opportunities for a broad range of industries.