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Key long-term trends take centre stage in our evolving economy

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This is a sponsored article from AXA Investment Managers.

Despite investor concerns over the possibility of a short-term equity correction — potentially triggered by surging volatility, escalating trade disputes, or rising inflation risks — a number of key secular themes that are more resistant to near-term market turmoil are appearing and evolving.

We see a booming use of smartphones for flight bookings, online shopping, and electronic payments, and the increasing application of robots in smart warehouses, surgery tables, and driverless cars — technological advancements are reshaping the world we live in and the way we should invest. Perhaps it’s time for investors to break away from traditional asset allocation approaches and look at thematic investment in long-term opportunities.

Five key multi-year trends have emerged as technology and society evolve: ageing population, digital consumption, automation, cleantech, and transitioning societies, all of which span across sectors and are likely to largely shape the way companies operate in the future. The good news is these evolving trends are not only visible in our daily lives but are also already providing investment value and diversification benefits, in terms of geographies, sectors, and market caps.

“[Thematic investing] provides an additional way to identify true growth companies with pricing power and competitive advantages, without being constrained by the traditional barriers of sectors,” said Mark Hargraves, head of global strategies at AXA Investment Managers (AXA IM). “Many companies are no longer respectful of these (traditional) sectors and are changing — and so are we.”

The digital economy is an exemplar of a trend flourishing in the evolving market landscape. Driven by rapid advancements in data analytics, e-commerce, and mobile consumption, online retailers and mobile payments have become exponentially popular amongst today’s consumers.

To put this into perspective, Alibaba sold US$25 billion of goods in just one day on China’s Singles’ Day in 2017, with 90% of the deals transacted through mobile devices1. The number might be surprising but the digital era is still in its infancy — only 9% of global retail sales were transacted online in August 20172 and according to estimates, global e-commerce is set to grow 13% by 20213.

In order to capture the growth of this evolving trend, AXA IM launched a strategy to tap into the potential of the overall value chain of the digital economy.

“Digital transformations are something we are going to hear a lot more about in the coming years,” Jeremy Gleeson, portfolio manager, Digital Economy Strategies at AXA IM Framlington Equities, told Asian Private Banker.

“As we notice the impact that technology has been having on consumers and retail industries more generally, we see that increasingly more of the investment opportunities are around the theme of ‘connected consumers’, and not pure technology companies in a traditional sense.”

Gleeson said the team doesn’t only look at the entire e-commerce journey from product discovery, buying decision and selection to final payment and delivery, but also at “enablers” — companies that provide technology products and services to help traditional businesses with their digital transformations.

“While we are only at the beginning of this significant trend, it already represents a huge opportunity for investors,” Gleeson added.

As the economy continues to evolve at an increasingly rapid pace given a constantly expanding technological landscape, commercial and environmental innovations, and ever-changing demographics, investors who can seize emerging trends like the digital economy may gain the vital first-mover advantage.

Sources: AXA IM as at September 2018

1 Bloomberg, Alibaba’s Singles’ Day Goes Global With Record US$25 Billion in Sales, 12 November 2017
2 Citi GPS, Technology at Work v. 3.0, August 2017
3 Euromonitor International, Citibank “Technology at work v3.0”, August 2017

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