Technology-driven change is all around us but seldom do we stop to reflect on what that change is or how it will affect us and the companies in which we invest.
Brace yourselves for the future.
In a recent research report Bank of America Merrill Lynch suggests that over the next five years the world will transform at its fastest pace in human history. It took nearly 80 years for telephones to become ubiquitous, but in the case of smartphones, it took less than a decade. Driving this pace of change is the exponential growth in data (doubling every two to three years); cheapening computing power; and the rise of our global, connected world.
The first theme highlighted by BoA Merrill Lynch is big data (the application of advanced analytics to vast data sets) and artificial intelligence. This should come as no surprise to readers – the rise of cloud computing is a significant catalyst in this revolution and the amount of global data stored and analysed is projected to swell from 1% today to 37% by 2025, unlocking up to $5 trillion in annual benefits. “Currently very few companies are harvesting their data,” says Martyn Briggs, research analyst at BoA Merrill Lynch. “But in discussion with our research teams, 80% of companies talk about the potential that is yet to be unlocked.”
The second trend, which is already playing out, is that of electric vehicles and future mobility. By 2025 it is estimated that 20% of global cars sold will be electric or plug-in and the effects will ripple far beyond cars, oil, utilities and capital goods towards multiple other sectors. “For instance, we will see changes such as ride-hailing, car-sharing, multi-modal transport (car+bike+bus+train),” says Briggs. “Other impacts could be felt in sectors like real estate due to the freeing-up of parking or filling station spaces.” Sectors involved are automotive original equipment manufacturers (OEMs), which are driving the change to electric, and the battery value chain, mining, utilities, software, and semiconductors. Old energy (oil and gas) and those car makers that are slow to adapt risk disruption, he says.
Society’s changing profile
Changing demographics is a trend that is always cited, but in this case, the change is happening more rapidly than people realise: every second, five people enter the middle class and one escapes extreme poverty, meaning the ‘Bottom Billions’ are becoming a force to be reckoned with. “The middle class is now the biggest class with 90% of the new middle class in Asia,” he says. And according to the Brookings Institution this group could expand faster in the next decade than at any other time in history.
Anyone who watches the news will know that extreme weather is more common than ever before. According to the research, 12% of the globe is exposed to extreme weather. “This translates into at least 60% of the population which is exposed to this weather,” says Briggs. “This impacts water, waste, energy, and emissions [or in the case of the Fukushima nuclear plant, possible emissions].”
Cybercrime and related privacy threats are increasingly part of our reality. “We have estimated that the cost of cybercrime will double to $6 trillion by 2021,” says Briggs.
Cybersecurity skills in short supply
It is not hard to see why: 16.6 billion records have been breached or potentially maliciously scanned in the past five years alone, and ransomware costs have increased 15 times in the past two years, making cybercrime the most reported fraud globally. The situation has been exacerbated by a severe skills shortage in cybersecurity – of an estimated at 3.5 million people by 2021, according to the World Economic Forum.
If data is the fuel for these megatrends, 5G is the engine making this virtuous cycle happen. “5G mobile networks will form the platform for billions of sensors and 30 billion connected devices,” says Briggs. “These will be at the forefront of the fourth industrial revolution and will play a vital role in climate change investments, energy efficiency, demographics, and consumer and behaviour trends.”
What sectors will be impacted?
BoA Merrill Lynch is optimistic about the technology sector, and e-commerce and payment sectors, while capital goods and consumer durables should also benefit over the next two to three years.
It is negative on apparel and general retail. “Consumers are moving towards e-commerce and fast fashion,” says Briggs. It is also negative on old media such as traditional advertising agencies and those disrupted by the likes of Netflix.
Traditional financial service companies and energy players could also face headwinds over the next few years, while mining companies will face different opportunities and challenges. For instance, providers of copper, cobalt and lithium stand to benefit from the rise of electric vehicles. Others, such as coal miners, could face headwinds.
