The Covid-19 pandemic and Russia’s invasion of Ukraine have led to greater volatility in financial markets. Despite the tense outlook, Credit Suisse says its “Supertrends” or long-term equity thematic framework has held firm.
The six Supertrends are anxious societies, infrastructure, technology, silver economy, millennials’ values and climate change. Together, they span 23 sub-themes.
Michael Strobaek, global chief investment officer at Credit Suisse, says: “We designed our Supertrends to transcend business cycles to offer investors multi-year equity investment opportunities. Although short-term catalysts tend to favour some Supertrends over others, we want investors to look beyond short-term sentiment and financial market volatility.”
According to Credit Suisse, the infrastructure and climate change Supertrends benefited from solid tailwinds in 2021 due to large-scale infrastructure projects as well as political support for climate change action at events like COP26.
Asia continues to undergo momentous structural change, like ageing populations and a booming middle class, says Credit Suisse.
The climate change Supertrend is also important for Asia Pacific, adds the bank. “We are fast running out of time to contain climate change’s extent and consequent impact,” says John Woods, chief investment officer, Asia Pacific, Credit Suisse.
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“A key determinant will undoubtedly be China and its seriousness about implementing its ambitious carbon neutrality targets.”
Infrastructure and maintenance
This year looks set to be the start of a multi-year infrastructure boom as government spending for new infrastructure programmes kicks off in the US and Europe, says Jens Zimmermann, senior equity analyst at Credit Suisse.
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“Most of the spending is slated to go to transportation, the energy transition and communications infrastructure.”
The US Congress passed a US$1.2 trillion ($1.65 trillion) infrastructure plan last November focused on upgrading US transportation, from which construction companies stand to benefit.
Zimmerman adds: “While these programmes have triggered inflation concerns, many infrastructure companies offer protection with contracts that have inflation-indexed pricing formulas. Due to underinvestment and deferred maintenance of existing infrastructure over the past two years … closing the gap remains an urgent and longterm investment theme.”
Large cities will have to accommodate a growing demand for electric vehicles (EVs) over the next 10 years.
Credit Suisse analysts have raised their projections for the global EV penetration rate by 2030 from 34% to 45%, up from just 4.5% in 2020.
Bloomberg New Energy Finance estimates that around 300 million charging stations will be required globally by 2040, mostly for home charging.
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Credit Suisse projects that the combined number of charging stations in the US, Europe and China would need to grow at a 25% CAGR through 2030, with estimated investments of US$1.5 billion to US$4 billion per year.
Telecom infrastructure assets, such as telecom towers and data centres, provide defensive investments with “above-average growth opportunities”, says Credit Suisse. “They are subject to long-term recurring contracts with telecom operators, typically 10- to 20-year initial contracts with extension options, and offer some inflation protection as lease rates are pre-agreed and typically include inflation indices or fixed step-up clauses.”
Technology and wearables
Starting in November 2021, technology stocks have repriced to reflect a higher interest rate world, as well as the fact that the “very high” growth rates during the pandemic will not likely be sustainable going forward, says Uwe Neumann, senior equity analyst at Credit Suisse. “Yet, the digital revolution still has far to go.”
Coming out of the pandemic, cloud investments mark one area to watch. By 2025, 51% of IT spending in application software, infrastructure software, business process services and system infrastructure markets will shift from traditional solutions to the cloud, up from 41% in 2022, according to February estimates by technology research firm Gartner.
This means more than US$1.3 trillion in enterprise IT spending is at stake this year, rising to nearly US$1.8 trillion in 2025.
The metaverse carries “an atmosphere of transformation like in the 1990s” with the dawn of the internet era, says Credit Suisse. “Use cases in the metaverse are manifold for both consumer- and enterprise-focused businesses.”
The emergence of the metaverse is also expected to drive upgrades to Asia’s technology infrastructure. China announced a US$2.3 trillion infrastructure package this year for roads, rails, factories, industrial parks, technology incubators and theme parks, among others.
Healthtech marks another bright spot. When Alphabet announced the acquisition of Fitbit in 2019, the use case for wearables evolved from measuring fitness activity to a lifestyle device that can help prevent disease or maintain health.
The global wearable medical devices market should rise to US$24.38 billion in 2025 from US$10.28 billion in 2021, estimates ResearchandMarkets.com.
Climate change
Credit Suisse says the world is in a transition phase. “Looking at shortterm developments in this area, the recent increase in energy prices should act as a catalyst to cut the world’s dependence on fossil fuels for electricity production and transportation,” says Daniel Rupli, head of single security research at Credit Suisse.
Over the next three years, the expansion of renewable production capacities is expected to absorb around 90% of growth in global power demand, reads a January report by the International Energy Agency (IEA).
In contrast, fossil fuel electricity production is expected to stagnate in the short term and substantially decrease thereafter as countries seek to meet net-zero emission targets by 2050.
The European Union’s expected labelling of nuclear energy and natural gas as transitional fuels should increase new investments in both energy sources globally.
As China is equally committed to reducing its carbon dioxide emissions, switching from coal to gas in China’s power-generation sector will keep demand for liquefied natural gas (LNG) strong over the coming decades, says Credit Suisse.
Energy transition and related infrastructure is being fast-tracked in China’s long-term development plan, adds the bank. “The country’s commitment to energy transition should keep business opportunities in solar, wind and EV-related sectors well-supported in coming years.”
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Photos: Bloomberg
