Which forces will shape investment markets over the next decade and beyond?
Megatrends are powerful, disruptive forces that shape economies, businesses and societies. They drive innovation, steer investment and create new ideas.
Identifying these trends helps guide us to opportunities – and away from risks. They steer us towards those sectors and industries with a clear runway of growth, enabling us to build better, future-proof investment portfolios.
4 megatrends will shape markets over the next decade
We’re at an inflection point today. The relative macroeconomic stability of the Great Moderation – which spanned the past four decades from 1980 to 2020 – is over and the years ahead are set to look very different.
We see four megatrends as shaping the next decade and beyond.
1. Shifting demographics
The global population hit 8 billion in 2022. This rising population is partly due to people living longer, with the number of people aged 65 and over increasing by 623 million in the past two decades alone. Yet the global fertility rate has halved since the 1950s.
As birth rates fall and populations age, the composition of the global population will change. This is particularly acute in Japan, where the working-age population is shrinking, but this phenomenon will impact multiple developed countries at the same time.
2. Changing world order
The current world order was thrashed out in the aftermath of World War II. But new and important economic powers, notably China, did not sign up for this framework and want the world’s economy to work differently.
This tension is likely to lead to a long-term realignment of the global economy, with new rules and new thinking. It will be a multi-polar world, rather than one focused on the US. This realignment will be felt across technology, supply chains and in the commodities markets.
3. Bumpy energy transition
Carbon emissions have increased sevenfold since the 1950s. Left unchecked, they could continue to increase exponentially, with dire consequences for the planet. Policymakers are scrambling to wind back the clock, to achieve ‘net zero’ emissions – levels last seen more than 200 years ago.
More than 80% of the world now operates under a net zero target. Meeting those targets requires substantial investment from governments and the private sector into alternative fuel sources and the infrastructure needed to support them.
4. Technological revolution
The reach of technology is increasingly vast. It acts as a catalyst for change across multiple industries, creating disruption, improving productivity and enhancing human know-how. Technology may also hold the solution to some of the world’s most intractable problems, from climate change to shifting demographics.
Understanding the influence of technology is vital for assessing any investment opportunity: it can uncover compelling growth opportunities, but also help avoid pitfalls, where companies are facing profound challenges to their business models. With an exciting mix of technology in the pipeline, we could be on the cusp of a technological revolution.
Why do megatrends matter to investors?
The world is subject to reinvention and renewal – the future will not look like the past.
Identifying megatrends helps us understand the shape of the investment landscape over the next decade and beyond, steering us towards opportunities and away from areas that could lose from disruption.
This is particularly important today, as the world wrestles with profound changes: it cannot go back to burning fossil fuels freely or turn the tide on technology. It needs to adjust to the rise of China and its mounting influence on the world stage. Each change brings risks, but also significant opportunities for those industries that are on the right side of these tectonic shifts.
Focusing on these profound changes in the economic and social landscape also helps ensure the sustainability and longevity of our investments at Evelyn Partners. This works in harmony with the environmental, social and governance (ESG) overlay that is applied to our investments. Companies that take care of these risks should benefit from megatrends, rather than be disrupted by them.
Our megatrend framework
Our megatrend framework considers how these long-term trends interact with each other to influence the global economy. For example, we expect new technologies developed in the ‘technological revolution’ to solve some of the healthcare challenges presented by ‘shifting demographics’.
These megatrends also collide with shorter-term ‘cyclical’ trends that influence economic outcomes in individual countries or regions. These include government decisions around spending or taxation. Both sets of trends will then shape the macroeconomic drivers of growth, inflation and interest rates – at the country and global level. These macro drivers go on to influence the investment returns attributed to individual asset classes and sectors. Understanding these interactions is essential in ensuring investment portfolios are positioned appropriately.
Frequently asked questions about Megatrends
What’s the difference between a megatrend and a trend?
Megatrends are powerful, multi-decade forces that reshape economies, businesses and societies. Examples of megatrends include the energy transition, as the world moves away from fossil fuels to address climate change, or the changing world order, as the rise of China changes the geopolitical and economic landscape. They are larger and more disruptive than simply ‘trends’, which may be relatively short-term and transitory in nature.
Why are megatrends important?
Understanding megatrends is key to understanding the investment landscape of the future. Assuming the next decade will look like the last has often proved a dangerous approach, particularly during times of profound social and economic change. Looking at these powerful long-term forces can help guide investors towards pockets of opportunities and away from significant risks.
How do megatrends affect businesses?
Whether it is a car company that needs to move to electric vehicles, or a hospitality group embracing digitisation, every business needs to look at how it could be affected by a changing world. Companies that are slow to adjust may find their products become obsolete, or their competitive advantage ebbs. For investors, it is vital to understand which companies are on the right side of these profound changes.
How do you invest in megatrends?
Megatrends can guide investors to those companies and industries with a strong pathway of growth. However, valuation can be a concern if markets get too excited about the long-term prospects for a particular theme. It is possible to invest in these themes directly through dedicated collective funds or ETFs, or to cherry-pick individual companies that stand to benefit from these shifts. Speak to us if you would like to find out more.