Long-Term Mega Trends

Zehrid Osmani, Head of Global Long-Term Unconstrained discusses the three Mega Trends that are going to be driving market dynamics in various segments on a multi-decades time frame.

24 October 2019

It's Zehrid Osmani, Head of Global Long-Term Unconstrained equities at Martin Currie. We want to discuss Mega Trends in this presentation and how it fits our analytical approach as long-term Unconstrained investors.

We have identified three Mega Trends. The first one, is Demographic Change. The second one is Future of Technology across all industries and areas of the world. And the 3rd one is Resource Scarcity.

Three Mega Trends

These Mega Trends are going to be driving market dynamics in various segments on a multi-decade time frame. These Mega Trends have got some overlapping areas, which provides some very strong growth opportunities if we can find them to be valued attractively. Within each Mega Trend we have identified sub-themes which released on the left and right of the diagram on screen and which we have colour coded in the same way as the Mega Trends that are appearing. We have assessed how exposed to each of the sub themes are all of our holdings in our funds. This gives us a more accurate estimate of our funds exposure to the sub-themes at the high level. We can assess how diversified where across the three Mega Trends are shown from the dot. We can also zoom in on the various Mega Trends to assess how exposed we are to each sub-theme.

Demographic Change

Zooming in on Demographic Change, we can see that the fund is very exposed to the growth in emerging markets middle class, to healthier living, aging population and urbanization. We can click in each of the sub themes and we can get the list of stocks that gives us exposure in the fund. Especially on the growth in the emerging markets middle class, it is clearly an important growth driver in the decades to come. Estimates show that the number of middle class. People in Asia could more than double over the next 15 years. We estimate that consumption of emerging markets middle class could grow at an annualized rate of high single digit over that period. Consumption of luxury goods by emerging market middle class could even grow at an annualized rate of low teems for some brands, which is a very strong growth trend for investors to harness. This can be through luxury goods and apparel brands or high-end automakers. All-in-all, various strong growth drivers in the Demographic Change Mega Trend.

Future of Technology

If we now zoom in on the Future of Technology Mega Trend, we can see that we have good exposure to IT outsourcing, Cloud computing, online gaming and cyber security. And in the intersection of Demographic Change and Future of Technology, to digital natives, consumerisation of healthcare and genomics in particular. On cyber security specifically, we estimate that spend on cyber security will be growing at an annualized rate of 10% to 2030. In a market where IT spend will be growing at around 5% per annum. In other words, growth in cyber security will be double the growth of IT spend, so again a very powerful long-term trend for investors to harness.

Resource Scarcity

If we then look at the third Mega Trend, Resource Scarcity, we can see that we have exposure to climate change, alternative energy, food and water scarcity, but we're also thinking about Resource Scarcity in broad terms and therefore have exposure to the China infrastructure is also a Resource Scarcity. We also have exposure to lending and investing because funding is a Resource Scarcity in particular in some parts of emerging markets. And in the intersection of Resource Scarcity and Future of Technology, we have sizable exposure to robotics and automation because human resources is a form of Resource Scarcity. Zooming in on electric vehicles, this is a very powerful growth trend for us. We estimate that the electric vehicle market will grow at an annualized rate of 30% by 2030. It isn't often in history that we have a sizable market has taken best part of 100 years to establish itself and that is mandated by regulation to shift from one technology to another, in this case from combustion engine to electric at the very same time as consumer demand is shifting in that same direction.

When we look at the electric vehicle opportunity as investors, it is important to look at it across the whole ecosystem, not just thinking about automakers such as Tesla. We want to find the most attractive opportunities across the whole value chain. In fact, we often find that being at the forefront of the consumer, which is where the automakers are, is not a great opportunity as it is more competitive with more aggressive pricing and exposes investors to consumer choice risk, a risk we don't want to run. Instead we find opportunities further up the value chain that offer niche products have high barriers to entry hence strong pricing power and therefore generate high returns, and that can give us access to the explosive EV growth opportunity without having to run the risk of consumer choice. It helps us reduce the risk exposure in other words.

Better visibility

All-in-all, you can see that looking at investment opportunities to our Mega Trends analytical framework gives us better visibility of attractive growth trends and a more accurate estimate of our portfolio exposures to the various themes. It also helps us manage risk exposures and diversification more efficiently. And finally, it gives us the ability to point our research work, where we find some potential attractive growth opportunities. All of which helps us manage our portfolios more efficiently as long-term unconstrained investors.


Important information

This information is issued and approved by Martin Currie Investment Management Limited (‘MCIM’). It does not constitute investment advice.

Market and currency movements may cause the capital value of shares, and the income from them, to fall as well as rise and you may get back less than you invested.
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