5 vital investment trends for a world of hefty stock valuations
Current high valuations of many assets are forcing investors to look for new solutions.
Thematic investments, that benefit from long-term societal trends, can help investors to better navigate through the daily ups and downs of the financial markets.
Demographics, transformational socioeconomic and political developments, as well as technological and scientific progress are at the core of these themes. But as always, the devil is in the detail. What is at the heart of these core themes and where is there scope for investment?
A publication, just published by experts at Credit Suisse, highlights five long-term themes, "supertrends", expected to dominate in the coming years and provide investment opportunities:
Angry societies – multipolar world
Rising inequalities within Western countries and frustration over perceived or real failures of the political establishment to deal with current societal challenges are leading disenchanted middle-class voters to demand change. This brings to power governments with strong mandates for a policy more oriented to support the domestic economy, create jobs at home and address some of the pain points of the Western middle class.
The years of hyperglobalization helped reduce inequalities across countries but raised inequalities within countries, leading to the social disenchantment that is now driving political change in many Western countries. Looking ahead, we expect a period characterized by economic policy that seeks to support domestic consumers and redistribute growth to sectors with high domestic employment. This will likely shift the spotlight to national champions and brands, defense and security and emerging market consumers, areas we consider multi-year investment themes.
Infrastructure – closing the gap
A global wave of new infrastructure programs has captured the attention of investors. From India to the U.S., governments have turned to infrastructure spending as a means to stimulate domestic economic growth. We review the opportunities for investors as infrastructure spending programs develop and gradually move our focus from transport infrastructure – which has been the first priority of many governments – to water, energy and affordable housing.
The need for infrastructure spending is clear, as is the political will to invest in infrastructure projects. Investors also appear ready to allocate capital to infrastructure spending. However, it is challenging for investors to find ways to benefit from such opportunities. We continue to maintain a list of equities related to infrastructure spending, but as the first direct beneficiaries of transport infrastructure spending have seen equity values price in heady expectations for future earnings growth, we turn our attention to housing and energy infrastructure as the next beneficiaries. Investors can consider direct participation in infrastructure projects or investments in infrastructure funds.
Technology at the service of humans
In recent years, technology has increasingly been regarded as a threat, with cheap robots, algorithms and programs seen as eliminating jobs and making human talent redundant. As initial thoughts about potential regulation or taxation are floated, technology and innovation that make workplaces safer, increase productivity and provide better products and services for people are in focus.
Technology at the service of humans is set to remain a key topic in the years to come. Digitalization paves the way for innovation, with internet platform companies and firms offering virtual reality and augmented reality technologies among the main beneficiaries. The sheer amount of data that continues to grow strongly will result in opportunities for cybersecurity and data waste management. The fourth revolution of the industry will continue to mostly benefit vendors of semiconductors and robots. Health tech, the internet and the human genome project offer fields for investing in the future of the healthcare industry.
Silver economy – investing for population aging
Although there is a general agreement on the trends related to aging, we are ill-equipped to grasp their magnitude in terms of the shift in societal composition: We expect the addition of more than a billion senior citizens by 2050 and an associated drop in the dependency ratio to pose immense challenges, but also present opportunities. In our view, investors positioned along the continuum of senior wants and needs – such as senior-centric consumer goods, healthcare services, senior housing, as well as wealth management and pension solutions – should see attractive returns.
We expect the unrelenting and seismic shift in the age composition of populations to impact consumer goods, health care, real estate and financial services markets. Besides some inevitable challenges, there will also be great opportunities for companies catering to a senior population that we expect to grow to more than 2 billion people by 2050.
50 percent of the world's population – we refer to them as millennials – is under the age of 30, and the values of this generation are set to become the norm. As a connected and truly global generation, they feel collectively responsible, they care and show they do through their actions. Digital natives with a different mindset and priorities than previous generations, they also value a conscious but experience and fun-oriented lifestyle.
Millennials are the largest generation in history and soon coming to full maturity as investors. Sustainability, clean energy, impact investing matter to the millennials and will gain in importance in the coming years. As digital natives, millennials are disrupting the traditional models and redefining consumption, with millennial brands emerging. Micro apartments are developing as an attractive type of housing for millennials and investors.