From ‘anxious societies’ to changing demographics, Credit Suisse has updated its long-term investment ‘supertrends’ — or ideas that will shape the future of the global economy — to align with the United Nations’ 17 Sustainable Development Goals (SDGs).
Addressing reporters at an online press conference held on May 4, Credit Suisse analysts gave updates to the ‘supertrends’ against the backdrop of Covid-19.
“When we first launched the supertrends in 2017, our objective was to identify multi-year societal trends that could lead to fast-growing business opportunities and enable investors to grow their capital,” says Credit Suisse’s global chief investment officer Michael Strobaek.
Launched in 2017, Credit Suisse’s Supertrends focuses on multi-year societal trends believed to lead to fast-growing business opportunities. Much has changed since the investment themes were introduced, including the outbreak of Covid-19. While the pandemic has accelerated progress in fields such as technology, it has reversed hard-fought gains in poverty, health, quality education and gender equality, adds Strobaek.
The SDGs were set up in 2015 by the United Nations General Assembly and are intended to be achieved by the year 2030. With some 25 to 40 stocks allocated to each ‘supertrend’, Credit Suisse’s six investment themes are anxious societies, infrastructure, technology, the silver economy, millennials and climate change.
“Investors play an important part by directing their capital toward investment solutions that participate in this effort — in other words, investing with purpose. Our long-term thematic equity investing framework, which covers a wide range of topics from climate change and demographics to infrastructure and technology, provides an avenue to do so,” he says.
‘Inclusive capitalism’
First, anxious societies signal the need for “inclusive capitalism”, says Reto Hess, head of single security research, equity industrials at Credit Suisse.
“When we started the supertrends in 2017, we felt that people were angry; we saw an increase in populism and increase in protectionism.” The recurring survey What Worries The World — which was conducted by Ipsos Public Affairs and Credit Suisse on 22,003 adults — recently found that Covid-19 concerns fell from some 60% in April last year to 50% in January.
In its place were other worries like unemployment, poverty and social inequality, financial and political corruption and crime and violence, which increased as the world grew accustomed to the ongoing pandemic.
In response, Credit Suisse highlights affordability, employment and personal security — which align with eight UN SDGs, including an end to poverty, good health and well-being and reducing inequality.
Based on the findings of the UN SDG Report 2020, the pandemic pushed 71 million people into extreme poverty in 2020, the first increase in over two decades. “The private sector, including investors, can provide effective solutions that do not necessarily entail more government spending but require the right incentives and partnerships,” says Hess.
He also highlights companies providing solutions to lower the costs of basic needs such as healthcare, housing, education and nutritious food. This also includes companies providing upskilling or education as well as those helping to improve the safety and security of citizens.
Sustainable investment
Another ‘supertrend’ to keep an eye on is sustainable investment in infrastructure. “As the world emerges from the pandemic, we expect developed and emerging countries to make an even greater effort to achieve this goal and strengthen the backbone of their economies by overhauling vital transport, power and telecom systems,” says Jens Zimmermann, senior equity analyst at Credit Suisse on energy and utilities.
The bank also points to US President Joe Biden’s US$2.3 trillion ($3.05 trillion) infrastructure program, which contains about US$700 billion for green initiatives related to electric vehicles infrastructure, electricity networks, energy efficient buildings, green technologies and clean energy manufacturing. This should support construction and infrastructure operator companies, it adds.
China’s pledge to become carbon neutral by 2060 signals an important infrastructure investment shift for the country’s 14th FiveYear Plan starting this year, says Credit Suisse. It adds: “Ambitious carbon reduction policies will drive global investments in renewable power generation and electricity network infrastructure. This is positive for renewable utilities and grid operators.”
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On telecoms, the build-out stage of the 5G wireless cycle should last for another five years, says Credit Suisse. “Accordingly, when telecom carriers grow their 5G mobile coverage, telecom tower companies benefit from the adoption of the 5G mobile standard.” That said, the European telecom tower market is less mature than the US, as less than half of its towers are owned by independent tower companies, it adds.
Digital transformation
Third, Covid-19 has accelerated digital transformation, which also contributes to sustainable developed cities. “Among others, it led to the advent of a new ‘touchless’ industry, opening up new opportunities that we capture in this supertrend. We expect digital products and services to continue to rank high among consumers’ and enterprises’ priorities,” says Uwe Neumann, senior equity analyst on technology and telecom at Credit Suisse.
German-based global research company Statista has forecast that 65% of the world’s GDP will be digitised by 2022. Credit Suisse believes there is investment potential in software, IT services and platform companies that serve the ‘touchless industry’ and enablers of digital payments, artificial intelligence (AI), virtual reality (VR), augmented reality (AR) and industry automation processes.
Demographic shifts
Meanwhile, two ‘supertrends’ pay focus on demographic shifts and the silver economy. For the latter, Credit Suisse highlights the world’s senior population, which is projected to double to two billion by 2050. “This shift will create demand, but will also unearth challenges that call for innovative solutions — in healthcare, insurance and consumer and property markets,” says Lorenzo Biasio, Credit Suisse’s senior equity analyst for healthcare.
By 2050, seniors aged 60 and above will overwhelmingly reside in Asia (1.3 billion), compared to 248 million in Europe, 216 million in Africa, 121 million in North America and 190 million in Latin America. “While it might seem like this is mostly a developed markets issue, it is a truly global phenomenon with about two-thirds of seniors to be added by 2050 being located in Asia and markets that are currently labelled as emerging markets,” adds Biasio.
Sectors to watch include biopharmaceutical, medical technology and life sciences companies focused on immunotherapies or antibody-drug conjugates; providers and operators of senior housing, managed care organisations and telemedicine operators; and health and life insurance companies, private wealth advisors and asset managers with strong pricing capabilities.
But as 60% of the world’s population is less than 40 years old, millennials form the next ‘supertrend’ as their digital habits offer a glimpse into the future economy. “We all lived like millennials during the Covid-19 crisis: Shopping, working and socialising online, and paying more attention to our health and the environment… [Millennials] are thrusting biodiversity into the spotlight, pushing companies toward greater sustainability within their supply chains,” says Julie Saussier, Credit Suisse’s senior equity analyst covering consumer goods.
With this demographic outlook, Credit Suisse highlights companies protecting biodiversity and the climate, healthy sustainable food, responsible consumption and production and clean energy. Asia is also in the spotlight as it is home to two-thirds of the global middle class population by 2030.
“A new trend is emerging amid a wave of national pride among younger Chinese consumers, and a corresponding rise in demand for domestic brands. Unlike in the past, these brands have the solid infrastructure in place to develop rapidly… Consumers no longer see these brands as inferior to foreign brands; on the contrary, they take pride in the ‘made in China’ label,” says Credit Suisse.
Climate change
Finally, climate change is perhaps the one ‘supertrend’ with the most far-reaching consequences. As such, the concerns are headlined across four subthemes: Carbon-free electricity, oil and gas transition pioneers, sustainable transport and agriculture and food.
The Intergovernmental Panel on Climate Change (IPCC) estimates that temperatures around the world will increase by three to four degrees Celsius by end-2100. “The world needs to decarbonise economic activity substantially to achieve the greenhouse gas (GHG) reductions set out in the 2015 Paris Agreement,” says Daniel Rupli, head of single security research.
Credit Suisse recommends investors look into firms leading in renewable energy and other carbon dioxide (CO2)-free power generation and electricity-storage technology providers; energy companies that can square the circle by cutting GHG emissions while maintaining dividend yields; and carbon-capture technology companies.
With the rise in electric vehicles, Credit Suisse is also eyeing transport companies with a strong commitment to CO2 reduction, sustainable fuels or hydrogen. There will also be a focus on companies providing technologies to improve sustainable food production such as precision agriculture, vertical farming technology, gene editing and controlled environment-agriculture technology.
“Governments, businesses and citizens are now looking at how to ‘build back better’ in the post-Covid-19 world,” says Strobaek. “While the pandemic will eventually pass once vaccinations have been rolled out, the world will keep this goal firmly in mind to address the challenges that lie ahead for our shared future.”
