THE TENYEAR BET

In a time of re­lent­less change, where should the long money go? For some, the an­swer is to the firms cre­at­ing that change.

The Peak (Hong Kong) - - Feature - STORY NICKY BUR­RIDGE

ech­nol­ogy looks set to trans­form the world as we know it dur­ing the com­ing decade. Ar­ti­fi­cial in­tel­li­gence (AI) and blockchain com­pa­nies may be good bets for peo­ple look­ing for a longterm in­vest­ment, but in­fra­struc­ture firms and those cater­ing to de­mo­graphic shifts could also pro­duce above av­er­age re­turns.

Sun­deep Gan­tori, eq­uity an­a­lyst, UBS Wealth Man­age­ment Chief In­vest­ment Of­fice, thinks the tech­nol­ogy sec­tor will pro­vide the best value for in­vestors in the next 10 years. He points out that dis­rup­tion has re­shaped the en­tire cor­po­rate land­scape in re­cent years, and he ex­pects this trend to con­tinue, with tech­nol­ogy com­pa­nies tak­ing mar­ket share from tra­di­tional sec­tors.

“The key trend that we think that will drive tech­nol­ogy will be ar­ti­fi­cial in­tel­li­gence.

“It is still in the early days at the mo­ment, but 10 years down the line we think ma­chine in­tel­li­gence will be on a par with hu­man in­tel­li­gence, which means that the scope of dis­rup­tion will be ex­po­nen­tial.”

He thinks the next 10 years will see the fur­ther de­vel­op­ment of vir­tual as­sis­tants, chat bots, robo ad­vi­sory ser­vices and even Ai-based un­der­writ­ing ser­vices in bank­ing and in­sur­ance.

“We ex­pect AI to cre­ate an eco­nomic value of US$1.8

tril­lion to US$3 tril­lion in Asia by 2030, with the fi­nan­cial ser­vices, health­care, man­u­fac­tur­ing, re­tail and trans­porta­tion sec­tors the most af­fected,” he says.

“In­vestors should avoid com­pa­nies ex­posed to sig­nif­i­cant dis­rup­tion from AI and tar­get firms with a strong tech­nol­ogy and R&D fo­cus in Ai-re­lated ar­eas in­stead.” Gan­tori also likes plat­form com­pa­nies, point­ing out that some of these have hun­dreds of mil­lions of users, giv­ing them great scope to en­ter ad­ja­cent ar­eas, such as pay­ments, e-com­merce and the wear­ables space. “These com­pa­nies have the syn­er­gies and a huge and loyal user base, en­abling them to gen­er­ate sig­nif­i­cant value by mov­ing up the value chain over the longer term,” he says.

But the sec­tor is not with­out risk. “There will be a point that tech com­pa­nies will be dis­rupted by tech com­pa­nies or start-ups or a break­through in in­no­va­tion,” Gan­tori says. An­other po­ten­tial prob­lem for tech com­pa­nies is in­creased reg­u­la­tion, the pace of which may gather mo­men­tum among gov­ern­ments wor­ried about ev­ery­thing from mo­nop­o­lis­tic be­hav­iour to se­cu­rity con­cerns.

“The suc­cess of tech­nol­ogy com­pa­nies is partly be­cause of the lim­ited in­volve­ment of reg­u­la­tors, but there could be a stage where reg­u­la­tors are wor­ried about the kind of dis­rup­tion tech­nol­ogy com­pa­nies are cre­at­ing, lead­ing to in­creased scru­tiny,” Gan­tori says. He adds that from an eq­uity mar­ket point of view, tech­nol­ogy has been one of the best per­form­ing sec­tors in the past few years, in­clud­ing in 2017, and while he thinks value is still rea­son­able, it is trad­ing at a slight pre­mium.

Frank Lee, act­ing chief in­vest­ment of­fi­cer (North Asia), chief in­vest­ment of­fice (North Asia), of DBS Bank (Hong Kong), favours the tech­nol­ogy sec­tor over the com­ing years, as he thinks it will be hard for other sec­tors to repli­cate this sec­tor’s earn­ings. His main in­ter­est is firms work­ing in soft­ware rather than hard­ware, and in par­tic­u­lar, those firms deal­ing with AI, vir­tual re­al­ity and blockchain.

He is par­tic­u­larly fo­cused on com­pa­nies de­vel­op­ing pay­ment sys­tems in China and South­east Asia, as well as big so­cial me­dia com­pa­nies, due to the high level of data they are able to col­lect on cus­tomer be­hav­iour. “We are in­ter­ested in the on­line and off­line con­nec­tion, how to use big data to de­velop rev­enue is a fo­cus for the com­ing years,” Lee says.

But he adds that the sec­tor faces risks, as these com­pa­nies have to find a way to gen­er­ate rev­enue from R&D in­vest­ment in big data and blockchain. “The prod­uct cy­cle for each IT prod­uct is quite short. In­no­va­tion comes at a very fast pace, so how to keep up this in­no­va­tion be­fore it is re­placed by oth­ers and how to gen­er­ate earn­ings is a chal­lenge,” he says.

But there is more to the fu­ture than tech­nol­ogy. Tuan Huynh, chief in­vest­ment of­fi­cer APAC of Deutsche Bank Wealth Man­age­ment, thinks in­fra­struc­ture is a good bet as a 10-year in­vest­ment.

“In­fra­struc­ture de­fi­ciency is a global dilemma. It is es­ti­mated that spend­ing of US$3.2 tril­lion an­nu­ally will be needed to sup­port growth in the global econ­omy through 2030.”

He adds that emerg­ing mar­kets are likely to con­tinue to be the driv­ers of global in­fra­struc­ture spend­ing, ac­count­ing for 60 per cent of the to­tal. “Fix­ing the global in­fra­struc­ture deficit, se­cur­ing fund­ing for fu­ture in­fra­struc­ture builds, job cre­ation, and a ris­ing stan­dard of liv­ing should be on in­vestors’ radar,” he says.

He also thinks com­pa­nies that fo­cus on cy­ber­se­cu­rity could be a good bet as the threat of cy­ber crime con­tin­ues to grow. Huynh points out that the US gov­ern­ment is ex­pected to bud­get US$19 bil­lion for cy­ber se­cu­rity in 2017, a 35 per cent in­crease on the US$14 bil­lion al­lo­cated in 2016. Glob­ally, the to­tal spend by busi­nesses on cy­ber­se­cu­rity is es­ti­mated to reach over US$90 bil­lion in 2017, with grow­ing aware­ness of the risks likely to spend­ing rise fur­ther still, ac­cord­ing to a re­cent report by an­a­lyst firm Gart­ner. That same report reck­oned on cy­ber­se­cu­rity by com­pa­nies to rise to over US$130 bil­lion by 2020.

Huynh also thinks in­vestors should pay at­ten­tion to de­mo­graphic trends, par­tic­u­larly in­creased longevity and global ag­ing. Health­care spend­ing per capita has risen sharply in both the US and China. “The ag­ing pop­u­la­tion could have a pos­i­tive ef­fect on the health care sec­tor, pos­si­bly in re­gard to can­cer, de­men­tia, in­creases in the num­ber of falls, obe­sity, and di­a­betes.”

Mil­len­ni­als, who have now sur­passed baby boomers to be the largest age de­mo­graphic in the US, also cre­ate in­ter­est­ing op­por­tu­ni­ties for in­vestors, par­tic­u­larly due to their high level of on­line spend­ing. The data that mil­len­ni­als cre­ate by be­ing on­line also opens pos­si­bil­i­ties. “Although the mil­len­nial gen­er­a­tion has a unique, evolv­ing set of needs around in­ter­ac­tive tech­nolo­gies, the abil­ity to ex­am­ine mil­len­nial be­hav­iour on­line gives com­pa­nies the power to change along with this cru­cial gen­er­a­tion,” Huynh says.

Frank Lee, act­ing chief in­vest­ment of­fi­cer (North Asia), chief in­vest­ment of­fice (North Asia), of DBS Bank (Hong Kong). Tuan Huynh, chief in­vest­ment of­fi­cer APAC of Deutsche Bank Wealth Man­age­ment.

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