By Tom Arnold and Elizabeth Howcroft
LONDON (Reuters) – Helicopter cash, climate crises, smart cities and the space economy — investors have all those possibilities ahead as they enter the third decade of the 21st century.
They go into the new decade with a spring in their step, after watching world stocks add over $25 trillion in value in the past 10 years and a bond rally put $13 trillion worth of bond yields below zero.
They also saw internet-based firms transform the way humans work, shop and relax. Now investors are positioning for the tech revolution’s next 10 years.
Could we see a repeat of the roaring twenties, as the 1920s were known — years of prosperity, technological innovation and such social developments as women winning the right to vote?
Possibly. But there’s unease, along with all the euphoria. The current economic cycle is already the longest in U.S. history and a recession looks inevitable in the new decade — which also will mark 100 years since the Wall Street crash of 1929.
(Graphic: U.S. economic growth click, https://fingfx.thomsonreuters.com/gfx/mkt/13/258/258/ecogrowth.png)
And solutions may need to be unconventional, even more so than the extraordinary policies of negative interest rates and bond-buying that eased the post-2008 global funk.
With those policies maxed out, “in the 2020s it seems inevitable that a world of helicopter money awaits,” Deutsche Bank predicts.
That would entail central banks or governments providing citizens with large amounts of money, as though it was being dropped from helicopters, a strategy rejected even by the unorthodox policymakers of the 2010s.
Another radical option under discussion is modern monetary theory, when governments create and spend as much money as needed, so long as inflation stays low.
“Central banks have effectively invited governments to experiment with more unconventional policies,” Deutsche said. However, those policies may pile up even more global debt, already at record highs.
(Graphic: On the rise: U.S. debt-to-GDP ratio click, https://fingfx.thomsonreuters.com/gfx/mkt/13/257/257/debttogdp.png)
So what will markets do?
A decade of rock-bottom interest rates didn’t revive growth and inflation in developed nations, but they certainly inflated markets, as prices for bonds, equities and real estate show.
The inequality they spawned have also triggered a widespread backlash against globalization. The result is a de-globalizing world, or as Morgan Stanley puts it, “slow-balisation”.
The bank expects tech investments to outperform, in particular smaller internet firms in China, as protectionism hurts larger rivals.
But it predicts less exciting returns — “a lower and flatter frontier compared to prior decades, and especially compared to the ten years post-GFC (global financial crisis).”
GLOBAL WARMING, PEOPLE AGEING
As market returns cool, the planet will continue to heat up. Carbon emissions, temperatures, sea levels and thus climate-induced poverty and immigration are expected to rise.
That should increasingly lead asset managers to seek alternatives to pollutants, especially coal, use of which must cease in OECD nations by 2030 for the Paris Agreement to be met.
BofA expects clean energy and electric-vehicle companies to emerge as winners, estimating the clean energy market to be already worth $300 billion.
Ageing populations are another challenge, making demographics a key investment criterion. Deutsche Bank names Ireland, Rwanda, Ghana, Botswana and Laos as among the 22 nations in line for a “demographic dividend”, benefiting from growing working-age populations.
It also backed sectors like e-commerce as Generation Z, those who will be in their mid 20s to early 30s by 2030, exercise growing spending power.
(Graphic: Growing old too fast: China’s workforce must support a larger population of elderly dependents Growing old too fast: China’s workforce must support a larger population of elderly dependents click, https://fingfx.thomsonreuters.com/gfx/breakingviews/1/1053/1418/China%20demographics.png)
But in some countries, affluent older spenders will still carry clout. By 2030, over 80s will represent 5.4% of the U.S. population, up from 3.7% in 2015, driving demand for retirement homes, healthcare and long-life innovations.
“Immortality may prove the most interesting secular theme in the 2020s,” BofA predicts.
TECH TIPPING POINTS
A World Economic Forum survey in 2017 predicted a series of “technological tipping points” for the coming decade. They included 3D-printed cars, driverless vehicles and the first artificial-intelligence machine on a company’s board. (Graphic: Robot Shipments Hit New Record png click, https://fingfx.thomsonreuters.com/gfx/editorcharts/USA-ECONOMY-ROBOTS/0H001PBF650Y/eikon.png)
The ’20s could be an era of smart cities, where big data and robotics ensure better governance, health and connectivity, UBS forecast. It expects annual spending to turn cities smart will reach $2 trillion in 2025 and internet-connected devices will multiply more than four-fold to 46 billion.
To take advantage of these shifts, investors will focus on areas such as autonomous vehicles — automated forklift shipments will grow to 455,000 in 2030 from 4,000 next year, ABI Research said.
Finally, advances in rocket and satellite technology are opening investment access to the final frontier. The first exchange-traded fund dedicated to the space industry opened in 2019.
UBS sees “parallels with how the global internet … opened up vast opportunities at the turn of the century.” It predicts the “space economy” https://tmsnrt.rs/2YpSX6Z will reach $1 trillion in the next couple of decades, from $340 billion now.
The bank backs existing listed aerospace, satellite and communications companies and new space start-ups in private markets.
(Reporting by Tom Arnold and Elizabeth Howcroft; editing by Sujata Rao)