Talking Money and Markets During the Holidays
The world is undergoing profound macro changes — in demographics, longevity, climate change, emerging market middle classes, global healthcare, to name just a few areas. As these macro themes evolve in 2019 and beyond, we believe equity investors should consider adding exposure in certain industries as they seek excess return opportunities above the market indices. Here’s a brief look at five of those themes.
Big Data and AI
The explosive growth of digital data collection, helped by more advanced semiconductor technologies, more pervasive and faster networks and the expansion of cloud-based data centers, has resulted in 90% of the world’s data being created in the past two years.1 Even so, only a very small portion of the data generated is ever analyzed. Artificial intelligence (AI) could be harnessed to create much greater efficiency and potentially lower costs, against this “big data” backdrop, in all matters of supply chain, inventory and labor management. AI is also central to voice-powered personal assistants, facial recognition, vehicle autonomy, and to behavioral algorithms boasting powerful predictive capabilities.
Electric Vehicles
The number of electric cars (EV) on the world’s roads could rise from 3.1 million in 2017 to 125 million by 2030, increasing demand for EV battery raw materials, including cobalt, nickel and lithium, as well as semiconductors and software.2 Driving the move to electrics are factors such as changes in environmental awareness and social preferences. A future booster of growth in global car sales: the rise of the global middle class consumer in developing nations, particularly China and India.3 Look also for a rise in the use of autonomous vehicles and a shift from car ownership to car usage, especially in ride sharing.
Demographics
The number of people aged 65 and over is expected to top 1 billion around 2030.4 Aging populations should increase demand for healthcare solutions – especially for heart disease, cancer, stroke, diabetes and dementia – and become a priority for many governments in both developed and developing nations. Longevity should also propel strong consumption growth worldwide in the years ahead. The emerging market consumer will likely represent key drivers of economic growth and corporate earnings in such global sectors as technology, health care, energy, travel and leisure, and transportation. Internet retail and digital payment systems may also benefit, owing to rising internet penetration rates and the proliferation of mobile devices.
Climate Change
Climate change and extreme weather conditions have taken a toll on the planet and are broadly acknowledged as the number one global risk. As an example, the five warmest years on record were all in the 2010s and came at considerable cost: The price tag for the frequency and severity of heat waves, hurricanes, floods and droughts in 2017 alone was $306 billion.5 Three-quarters of the people with crisis levels of food insecurity have also been affected by extreme weather, which can impair food production. Coastal areas are also being affected by rising water levels as the polar ice caps melt due to warmer temperatures. As governments, communities and corporations respond, look for investment opportunities in flood abatement, more efficient farming technologies, carbon sequestration, electric vehicles, air conditioning, alternative energy sources, clean water, and more.
The world is on a trajectory to not only become warmer, but hungrier and dirtier. Consider this: 76% of people with crisis levels of food insecurity have also been affected by extreme weather as it becomes more difficult to provide the world with food in extreme temperatures. Rising per-capita incomes among a burgeoning middle class, combined with greater urbanization, is leading to more consumption of mass-produced goods and a mountain of global garbage and waste products like food waste, cardboard, plastics, glass, industrial waste, scrap metals, food waste, eWaste (electronic waste). The level of solid waste produced each year is expected to reach 6.1 million tons per day by 2025, according to estimates from the World Bank. Waste generation tends not to rise or fall materially due to changes in economic conditions. For that reason, investment implications for this theme pivot around pure waste management and recycling plays, water utilities and water treatment companies, infrastructure material and industrial companies, green energy management and smart cities.
Privacy and Cybersecurity
Some 18 billion connected devices, 4 billion internet users, 3 billion social media accounts – the amount of data exchanged over the internet increased by 22% in 2016 alone, with the total expected to double by the end of the decade. The more data available, the greater the opportunities for hackers and data thieves. Indeed, the cost of cybercrime is set to grow to $6 trillion by 2021 as more people come online, per-user data consumption increases, and attack threats become more mainstream and sophisticated.6 This stark reality will generate opportunities in protecting the global digital economy in anti-virus software against malware (the largest sector of attacks), Internet of Things (IoT) protection, payment processing, and user data/fraud verification.
1 IBM as of 2018.
2 “Global EV Outlook 2018,” International Energy Agency, 2018.
3 McKinsey, ”Automotive revolution – perspective towards 2030”, January 2016.
4 United Nations as of 2018.
5 National Oceanic and Atmospheric Administration, 2018.
6 Markets and Markets 2018.
IMPORTANT DISCLOSURES
This material was prepared by the Chief Investment Office (CIO) and is not a publication of BofA Merrill Lynch Global Research. The views expressed are those of the CIO only and are subject to change. This information should not be construed as investment advice. It is presented for information purposes only and is not intended to be either a specific offer by any Merrill Lynch or U.S. Trust entity to sell or provide, or a specific invitation for a consumer to apply for, any particular retail financial product or service that may be available.
Global Wealth & Investment Management (GWIM) is a division of Bank of America Corporation. Merrill Lynch Wealth Management, Merrill Edge®, U.S. Trust, and Bank of America Merrill Lynch are affiliated sub-divisions within GWIM. The Chief Investment Office, which provides investment strategies, due diligence, portfolio construction guidance and wealth management solutions for GWIM clients, is part of the Investment Solutions Group (ISG) of GWIM.
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