The rapid rise of COVID-19 and the measures governments have taken impacted almost every aspect of life in 2020, including financial markets. The pandemic has caused movement in all asset prices globally, and we expect a similar trend once we emerge from the pandemic. We have identified opportunities that we believe will have a meaningful impact on portfolios over time Over the last two years, we recommended that clients build exposure to our four “Unstoppable Trends:” the rise of Asia, increasing longevity, digitization, and the greening of the economy.
Turning first to Asia, the region is growing rapidly and its comparative success in its approach to the pandemic is the latest example of its strength. In 2020, Asia’s GDP in purchasing power parity terms overtook the rest of the world for the first time since the nineteenth century, and we expect that trend to continue. Asia is set to account for the majority of global middle-class growth by 2030, or approximately 1.5 billion people. It will likely add a hundred cities with a population of above one million. We expect increased competition between the US and China as this growth continues. Decoupling of the US and China, the G2 powers, is likely with an emergence of separate supply chains across two distinct centers of economic gravity. We expect correlations between US and Asian assets may decrease over time. Therefore, increasing exposure to China is beneficial for continued diversity in global portfolios.
The world’s elderly population is growing rapidly and the aging of the global population will have far-reaching implications, including increased healthcare needs. Spending per capita on healthcare in developed nations for a person 85-years and older is six times greater than for a 59-year old. COVID-19 has also disproportionately affected the elderly and has highlighted the vulnerability of existing healthcare systems. Likewise, the pandemic has accelerated innovation in technology and treatments to adapt. Increasing healthcare needs may present a challenge for society, but it also creates opportunities for a range of innovative companies. We believe technological innovation on both the patient and provider side will outlast the pandemic, and the investment opportunities arising will extend beyond well-known pharmaceutical companies, including personalized medicine, healthcare infrastructure and remote monitoring and devices.
The third “Unstoppable Trend” focuses on the next phase of the digital revolution. COVID-19 accelerated the pace of all things digital and drove innovation across the board. In particular, internet connectivity profoundly shifted the way businesses sell goods and services, organize themselves and their workforces, and gather information. Likewise, individuals communicate, consume, and enjoy entertainment differently. We believe technology will take another huge leap forward, as 5G and other emerging technologies enable faster and wide-ranging coverage globally. We view 5G rollout as a relatively near-term opportunity, and opportunities such as autonomous driving, telemedicine, and “smart cities” as longer-term winners.
While the world has been focused on fighting a global pandemic, renewable energy has quietly passed a major tipping point. Throughout its history, the adoption and use of renewables has been supported by government incentives, legal mandates and well-intentioned consumers, rather than market forces. In 2020, clean energy became the cheapest new source of electricity in most of the world, despite dramatic falls in the price of oil. The switch from fossil fuels to renewables is integral to the process of “greening the world.” However, it is only one facet of the transition to a more sustainable existence. Firms at the cutting edge of new energy development, electrification, or energy efficiency can offer exposure to this trend.
The pandemic has had a clear impact on the markets, one that we continue to monitor closely. Throughout 2020, and into this year, the four unstoppable trends have demonstrated our ability to withstand economic cycles, potentially offering resilient growth to portfolios.
