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The way of defining economic success has evolved over time and the old way of relying on quantitative metrics is becoming outdated. Increasingly, people are looking beyond headline GDP numbers and demanding an economic model that is fairer, more inclusive and sustainable.
To capitalise on this shift, investors need to think in terms of economic development rather than growth. Development puts in place the foundations on which long-term, high-quality economic progress can be achieved.
This shift in mindset is increasingly important in reshaping how the world thinks about investment opportunities and is enabling investors to differentiate long-term winners from losers.
If we look beyond the traditional narrow realm of growth defined by GDP, redefining economic development and understanding investment opportunities require a differentiated and multidimensional approach — a new “GDP” approach for the twenty-first century — to examine global and disruptive issues and trends with a prescient mindset.
Global: both business models and market-moving events are increasingly transcending borders
Disruptive: secular trends seen today are challenging the conventional mindset
Prescient: assessing opportunities with a broad thematic lens will facilitate dynamic positioning over multiple cycles
In today’s interconnected world, technology allows companies to expand globally with greater ease, while traditional sector definitions are becoming too rigid for modern operating models. Meanwhile, cross-border issues like climate change and ageing populations are disrupting society, which is creating challenges but also opportunities for businesses. Secular trends like these frequently lead to under-appreciated investment themes. Prescient investors who gain a deep understanding of how these economic, geopolitical, technological and consumer trends will play out over the coming decades should be able to identify attractive long-term investment opportunities.
Using the new lens, we can categorise investment opportunities into three key drivers of sustainable economic development — economic progress, social evolution and sustainability.
Opportunities in economic progress include development drivers that capitalise on the growing efficiency in the production of goods and services with the help of increased application of new technologies and scientific insights. Beneficiaries of such advances could be found in areas like automation, robotics and digital and physical infrastructure.
Theme spotlight: medical innovation
It took 13 years and nearly USD 3 billion for the first sequencing of the entire human genome. With today’s next-generation sequencing (commonly known as NGS) technologies, the entire human genome can be sequenced for USD1,000 in a single day.
Source: National Human Genome Research Institute, ‘The Cost of Sequencing a Human Genome’, December 2020
Social evolution is accelerating thanks to improving living standards and supportive governmental policies. As health care, education and financial services become more accessible, we see a change in behavioural patterns and new investible opportunities.
Theme spotlight: education and learning
UN projections imply that, between 2015 and 2030, 2 billion children will enter primary school. According to our research, it is estimated that the next 10 years will see the largest growth in the education market since the post-World War 2 boom.
Sources: United Nations, Department of Economic and Social Affairs, Population Division (2015). Population 2030: Demographic challenges and opportunities for sustainable development planning (ST/ESA/SER.A/389).
Sustainability-led opportunities reflect global concerns about climate change, pollution and overconsumption. These issues have put the spotlight on how businesses are using available resources with due consideration for future generations and the environment. Investible ideas span renewable energy, waste management, recycling, water treatment and other clean technologies as well as testing and diagnostics.
NEXT GENERATION VEHICLES
Theme spotlight: energy transition
It took 13 years and nearly USD 3 billion for the first sequencing of the entire human genome. With today’s next-generation sequencing (commonly known as NGS) technologies, the entire human genome can be sequenced for USD 1,000 in a single day.
Source: IRENA (2018), Global Energy Transformation: A roadmap to 2050, International Renewable Energy Agency, Abu Dhabi.
The old way of measuring economic growth through GDP is outdated. A new development-focused approach that looks past the headlines and goes beyond traditional definitions can yield a host of new ideas. Turning these ideas into investible insights that drive long-term returns requires expertise, creativity and an unrelenting focus on finding and exploiting underappreciated opportunities. Investors can help to drive this change today and to define the future of our society. By tapping into themes of economic development, they can not only seek to shape a fairer, more sustainable world but also potentially grow their own wealth to pass on to future generations.
Long-term trends often go underappreciated by investors. By researching structural themes shaping the future of our world, we believe we can identify attractive opportunities ahead of the market.