An ageing, increasingly urbanised and growing population will change the world dramatically.
Each country faces its own challenges over the next decade, according to researchers at Credit Suisse. The debate over the budget in Australia right now is partly driven by the challenges of the ageing population, with the ratio of workers to retirees expected almost to halve over the coming decades.
But, says Credit Suisse in its Megatrends report, there is opportunity in change:
“We see the impacts of the different demographic trends around the world as creating significant opportunities in areas such as construction, healthcare, networks, energy, food, water, and automation.”
Most metropolitan areas will face significant challenges due to increasing populations and old infrastructure.
Road congestion costs $121 billion per year in the US alone, according to the Federal Highway Administration.
The United Nations says urban air pollution costs 2% of GDP in developed and 5% in developing countries and is primarily caused by vehicle emissions.
Urban life quality and efficiency will likely be transformed by ‘smart city’ technologies to run waste management, transportation, security, building management, energy and healthcare.
The smart appliance global market value is estimated at $2.1 billion in 2013. A smart city technologies study commissioned by the UK government forecasts the global market will be worth $408 billion by 2020.
This includes approximately $220 billion for smart grid technologies, $156 billion in transport and $22 billion in water.
Credit Suisse says the adoption of smarter technologies in the coming decade is inevitable given the decline in the cost of processing power and the increased pressure on the environment and urban living conditions.
Sectors benefiting from smart city investments include utilities, capital goods, semiconductors, telecoms and software.
While the timeframe of adoption of smart technologies varies, some of them are already available such as technologies which enable remote control systems for houses.
Smart grid technologies are being increasingly used in electricity networks and can result in increased energy efficiency, utilisation and reduced supply disruptions through the use of sensors and power meters on devices connected to the electricity grid.
Automated waste collection and water management systems can result in significant savings from reduced wastage.
Urban transportation is another area with huge potential.
Congestion pricing is already a feature in some cities, the revenues from which are often used in transportation infrastructure.
Over the next decade, autonomous vehicles will probably be introduced that will not require new infrastructure but can use inexpensive positioning and mapping systems, in addition to information from sensors as well as mobile phone traffic data to find easier routes.
There are already several technologies, such as telecommuting, cycle hire and adaptive traffic control systems, which offer cost-effective options for enhancing urban mobility.
More than half of the world’s population lives in cities and by 2030 this will rise to 60%. Most of this growth will be concentrated in the developing world. The big rises will be in China, India, Nigeria and Pakistan.
Housing is an important driver for construction in developing market cities. Residential buildings account for 24% of the global energy demand and have significant energy efficiency potential.
High population densities are also likely to make security issues more prevalent, fuelling demand for building security solutions.
Beneficiaries: Cement producers, building material/construction equipment manufacturers and steel industries are the natural beneficiaries of the construction trend. Building control systems, lighting, window glass, public- security and access system manufacturers should also gain.
Beyond construction and building materials, urbanisation creates the need for investment in both transportation infrastructure as well as utilities.
Transport infrastructure provides lower-paid labor from outlying districts with swift access to more expensive city centers and eases road congestion and air pollution.
In China, the latest plan envisages a 60% urbanisation target by 2020. However, much of this focus is centered on boosting urban investments in smaller cities, where funding difficulties may arise and job growth outlook is less certain.
Within advanced countries, much of the urban infrastructure is over 50 years old, and will have to be replaced.
The American Society of Civil Engineers classifies overall US infrastructure as ‘poor’, with a ‘poor’ rating in roads systems.
Advanced cities will continue to be hot spots for construction activity. According to McKinsey, the biggest growth markets in commercial real estate up to 2025 are New York, Beijing, Shanghai, Los Angeles, Tokyo, Washington DC and Dallas.
The global population rose by 120% between 1961-2011 but arable land only grew by 9%, according to the Food and Agriculture Organization (FAO).
As a result, the number of people supported per hectare of farmed land rose to 4.9 from 2.4.
By 2050, global agriculture production will need to have risen by 70% from today’s levels to meet growth in food demand from an increased population, rising incomes and a shift in preferences to protein-rich diets.
However, the supply of arable land is restricted due to urbanisation, soil degradation, and competing land usage.
Opportunity: Agriculture investments are largely driven by farm incomes which in turn are related to food prices. US farm income is projected to drop by 22% in 2014, creating near-term headwinds for investments in agriculture. In addition, fertiliser producers face overcapacity risks in the near term. Yet, food price volatility will likely be elevated in the next decade, as a result of yield variability, weather-related supply disruptions and distortive policy responses, such as export bans or direct price supports. All this clearly reinforces the long-term case for agriculture.
The distribution of freshwater supply is skewed with about 1.2 billion people globally now facing some level of water stress.
Warter sources are expected to drop by 20% by 2030 because of demand pressures and climate change, according to the UN.
Climate change will likely have asymmetric effects on water resources and quality across regions, by putting subtropical regions under greater stress, increasing the frequency of drought in dry regions, but also increasing resources in high latitudes.
Increased human activity, chemical run-offs and inadequate waste water treatment are contaminating aquifers and surface water, which will exert greater pressure on resources.
Water is becoming an important strategic resource and possible source of instability.
In Texas, water scarcity is limiting the number of shale wells which can be drilled.
China is also suffering from water-related stress, costing some 2.3% of GDP according to the World Bank.
Opportunities: Agriculture-related activities account for 70% of water demand. Lack of irrigation infrastructure, particularly in emerging markets, leads to unsustainable withdrawals from groundwater resources. Increased consumption of water-intensive foods such as rice and meat will also put them under pressure. This will create an opportunity for companies manufacturing equipment for micro-irrigation techniques, for example drip irrigation and sprinklers, as well as companies manufacturing genetically modified crops resistant to drought.
There’s a bright future for water-treatment technologies with an expected market size of $25 billion by 2025, desalination has seen robust growth with an increase of 57% in installed capacity since 2008, according to the Global Water Institute.
The shale oil revolution in the United States has significantly reduced US energy dependence, spurred competitiveness, and triggered a renaissance in manufacturing.
Gas prices in the United States have fallen dramatically relative to prices elsewhere, prompting European manufacturers in energy intensive industries, such as chemicals, to relocate to the US.
Recently, fear of an oil glut has prompted US energy companies to call for an end to the export ban for crude oil.
Among the more mature regions, the Gulf of Mexico offers some of the most attractive growth potential, not least supported by Mexico’s recently passed energy reform which could help to revive the country’s underused oil and gas industry.
While the abundance of new resource areas reduced concerns over peaking oil supply, the world’s growing need for oil and gas products continues to drive the industry’s advance into more remote regions.
As one of the last untapped resource areas, the Arctic and its vast resource potential have started to receive increasing interest from the oil and gas industry.
However, it is still early days and progress is complicated by the challenging climatic conditions and remote location of the reservoirs.
Consumers are usually willing to pay a premium for products and services which, at least in their own personal interpretation, hold a promise of lifestyle enhancement.
For many, pursuing a certain lifestyle is not limited to the present; it is an effort to maintain well-being throughout the process of ageing.
From an investor’s perspective, organic food is the most liquid lifestyle-related investment theme.
In the United States, which accounts for about half of the world’s organic food market, retail sales in 2013 were valued at $35 billion, according to the US Department of Agriculture.
The industry now encompasses over 18,000 certified organic farms representing a 245% increase since 2002.
While there is a debate whether organic food is indeed healthier than its alternative, consumer preferences have clearly shifted in favour of it.
A similar argument can be made for food products where production is based on principles of fairness and sustainability.
While sports and recreation are important pillars of the lifestyle trend, investment opportunities in the form of publicly listed fitness centers or spas are limited.
However, it is a market which could grow considerably, particularly in emerging markets.
The idea partially overlaps with the emerging consumer theme, where sports shoes and apparel are among key consumption items.
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