Pandemic hastens reform of global investment landscape
Digitalization, automation, sustainability, social distancing all remain in focus
NEW YORK－The almost yearlong COVID-19 pandemic is transforming the investment landscape, with multiple long-term trends picking up speed. And the world is set to become more digitalized, automated and sustainability-savvy as lifestyles and economies undergo profound changes, according to experts and investment advisers.
The faster growth of e-commerce, online entertainment and long-distance work have made people rely more on digital modalities.
The skyrocketing stock prices of Zoom Video Communications Inc and Netflix Inc serve as good examples of how sweeping changes could bring opportunities to investors.
Globally, the average share of products and services partially or fully digitalized reached 55 percent as of July 2020, up from 35 percent in December 2019, which represented seven years of progress made prior to the pandemic, according to an online survey by McKinsey covering 899 C-level executives and senior managers across the globe.
5G technology alone has created $619 billion in annual revenue potential in real-time automation, enhanced video services, monitoring and tracking, connected vehicles, augmented reality and other areas, said a recent annual outlook report by UBS AG.
"5G enables myriad business models and could spur the growth of a new generation of platform leaders capable of harnessing 5G technology," UBS said.
Yearly capital expenditure on 5G equipment production, installation and maintenance is expected to grow from $7.5 billion in 2019 to as much as $150 billion in 2025 while more than 1 billion devices will be connected to 5G networks in the next three years, UBS added.
Meanwhile, annual revenue from the fintech industry could rise to $500 billion by 2030, up from $150 billion in 2018, with significant scope of growth in contactless and mobile payments as well as e-commerce, the report said.
Retailers saw significant growth in online sales, and more businesses like restaurants, grocery stores and fashion brands are attracting consumers by offering online options.
Consumers in the United States spent $9 billion on Black Friday 2020, an increase of 21.6 percent year-on-year, according to Adobe Analytics.
"Once customers have grown accustomed to using primarily digital payments, many will not revert to traditional means," UBS said.
Moreover, central banks from Europe, China and elsewhere are pushing ahead the adoption of digital currencies.
The evolution of global supply chains, the COVID-19 pandemic and the fourth industrial revolution are giving automation and robots a greater role.
Technology, telecommunications and electronics players are reshoring their supply chains and automobile manufacturers are resorting to nearshoring operations, said Helen Xiao, senior manager for international tax and transaction services with EY.
Some enterprises adopt the China Plus One strategy or build regional supply chains so as to have additional capacity, flexibility and resilience amid disruptions from trade tensions and tariffs, said Xiao during an earlier webinar.
Meanwhile, millions of jobs lost in the pandemic have been partially replaced by robots as social distancing requirements in factories necessitate a bigger role for automation.
The world had 2.7 million industrial robots operating in factories by the end of 2019, which surged around 85 percent from 2014, according to the World Robotics 2020 Industrial Robots report by the International Federation of Robotics.
Although COVID-19 is having a strong impact, it also offers a chance for modernization and digitalization of production on the way to recovery, said the IFR.
"Automation enables manufacturers to keep production in developed economies－or reshore it－without sacrificing cost efficiency," the report said.
Major economies like the United States, the European Union, China and India are pushing for self-reliance from their perspectives as the COVID-19 pandemic exposes the vulnerabilities of supply chains.
"A broader shift in global supply chains could be accelerated by a response to the COVID-19-driven need for flexibility that could drive both urgency and upside to demand for industrial automation," said an earlier research note by Bank of America Global Research.
Heavy capex on China-related supply chain adjustment could bring in over $100 billion of industrial automation revenues in a period of five years, said Bank of America Global Research.
In the long run, the automation of warehouses and factories will benefit from the rise of online shopping and a less globalized world, said UBS.
Sustainability is increasingly a focus among consumers, enterprises, social organizations and governments across the globe as humanity suffers heavy losses from natural disasters this year.
The EU, Japan and China have made promises to go carbon neutral in the next few decades while the new administration of the US is likely to rejoin the Paris climate agreement to combat climate change.
"Although these are long-term targets, we expect governments to start acting in 2021 to stimulate job growth and economic activity, aiding the recovery from the pandemic," said UBS.
Government regulations, investments and subsidies would be geared to using more electric vehicles, hydrogen power, digital solutions as well as renewable energy in power generation, building heating and cooling, UBS added.
With the world shifting toward sustainability, many of the highest-growth opportunities in the decade ahead are set to be sustainability-related. The demand for greater safety and transparency amid the pandemic may lead to the growth of high-tech foods such as plant-based meat alternatives, UBS said.
In 2020, assets under management in funds which invest based on environmental, social and environmental principles topped $1 trillion for the first time, according to US financial services firm Morningstar.
Morningstar recently integrated ESG factors into its analysis of stocks, funds and asset managers.
"For companies, evaluating ESG risk is a business imperative to meet diverse stakeholder needs and mitigate potential legal, operational or reputational risks," said Haywood Kelly, Morningstar's head of research.
Part of the interest in sustainable investing has been fueled by the pandemic and investors adopt ESG investing as a risk management tool, according to UBS.
Moreover, sustainable equity funds outperformed their traditional peers by a median of 3.9 percent in the first half, said a report from the Morgan Stanley Institute for Sustainable Investing, which covered over 1,800 US mutual funds and exchange-traded funds.