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.
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.