The next decade – 2020 Vision
19 Sep 2019
Ben Kumar , Investment Strategist

One hundred years ago, the Roaring Twenties were about to begin. As the recovery from World War I turned into an economic boom, technological development and social liberty started to modernise almost everything about life – from films to fashion to finance.

In the Twenties, the spread of phones and movies transformed communications forever. Cars and planes came into widespread use, creating the tourism and oil industries. The 1920’s also ushered in a century of US cultural, political and economic dominance. Many investors who identified some of these trends early on became very wealthy – and appear on billionaire lists even today.

So what forces could change the world in the 2020’s? What trends should we look out for? Elon Musk is aiming to launch the first private spaceflight to the moon in 2023. Is space tourism the next big thing to invest in – should you be stockpiling rocket fuel and researching spacesuits?

There are many more questions for investors. Are there clues as to which country will dominate the next century? How will the growth of Asian consumers change global demand? What will an older and greyer population across the world mean for the countries that have to support them? How will climate change affect the industries exposed to it, or will it create brand new ones?

Making the world bigger and smaller

At the beginning of the 1920’s, it took nearly ten days to get from London to New York by boat. The Spirit of St Louis took 30 hours in 1928. It now takes just six hours by plane – and is far more comfortable.

Travel in the next decade could get wilder than we have imagined … at least since the wave of excitement following Neil Armstrong’s small step onto the moon, fifty years ago.

Beyond tourism for billionaires, Elon Musk is talking about a colony on Mars by the end of the next decade. An interplanetary human race would bring enormous challenges, and plenty of opportunities too.

Of course, at the same time as our horizons are expanding into space, the world is also getting much smaller, and more personal – thanks to the technology in our hands. We shop and Skype, crush Candy and count steps on our phones. We Tweet views to everyone, group chat with a select few, and private message the truly special. Perhaps the least used function of a mobile phone is old fashioned voice calling …

In the next ten years technology will become even more embedded in our lives. It may not seem that we can get more connected than currently, but I suspect Google, Facebook, Netflix and the likes will prove us wrong. Betting against innovation has not been sensible historically – but it can be difficult to work out exactly who the winners from tech will be. Remember MySpace?

A world where the US is not number one

The Empire State Building was designed in the late 1920’s. Once completed, it remained the tallest building in the world until 1970. Skyscrapers became synonymous with wealth and power – and the United States led the way for a long time.

Now, Asia dominates. Looking at the twenty cities in the world with the most skyscrapers, nine are in China, with seven more scattered round the Far East. The US has only two cities on the list, New York and Chicago.

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This example highlights the ongoing shift of global economic and political power to East Asia. China will exert increasing influence on the global stage as it flexes its muscles internationally. Coming to terms with the new, huge kid on the block could be tricky for the ‘old’ powers: the USA and Europe. A more confrontational geopolitical environment is likely to make financial assets more volatile– we see this already with Mr Trump’s Twitter feed.

Meanwhile 1.4 billion Chinese consumers want more things to spend their money on. Developed market brands used to dominate the middle-class Chinese market. But over the last decade this has been changing. In 2017, the Chinese manufacturer Geely ranked third in Chinese domestic car sales for the first time. China is so big that this also made Geely the fifteenth largest car-maker in the world! Businesses that get China right will be rewarded.

Billions, old and new

As medicine and public health have improved worldwide, more and more people are living for longer and longer. In the US in the 1920’s, only one person in twenty-five was older than 65. Today this figure is close to one in seven – and in ten years is forecast to be one in five.

Aging is global – more than one third of Japan’s people will be over 65 by 2030. Even young, fast-growing countries like China, India and Brazil are going to see far more grey hair.

Of course, babies will still be born, most of them outside the developed world. The UN forecasts that India will become the most populous country on earth just as the 2020’s end; home to over 1.5 billion people. The global population will grow by about 11% in the next ten years. That’s 1.2 billion extra humans – most of them in Southern Asia and sub-Saharan Africa.

These changes will happen slowly, but steadily. Many Western economies will struggle to fund the retirement of a large swathe of their populations. With more and more retired people relying on savings for support, there will be new and unexpected flows of money in the financial system – which may upend the current status quo.

Some East Asian nations will have to deal with aging, as well as trying to create new jobs and industries for the younger generation. Could sub-Saharan Africa end up being an economic growth winner?

The climate changes everything

The world is heating up, and will keep getting hotter for a while to come. Businesses across the world are responding already. Some companies are addressing small problems that might become big, whilst others are trying to solve small parts of a big problem. Over the next ten years, we’ll start to see which problems – carbon emissions, rising sea levels, temperature change, extreme weather – are the most important.

As the world begins to move away from fossil fuels, coal, oil and natural gas companies will have to adapt. Do investors really want to own companies whose assets amount to large holes in the ground? The answer isn’t as straightforward as it seems.

Mining sounds like an obvious sector to avoid, but it all depends on what’s being extracted. Coal might be on the way out, but lithium and cobalt are vital components of batteries in electric vehicles … for now. And copper will be needed as solar power begins to dominate electricity supplies.

Oil companies might struggle as demand declines. But the people who run BP and Shell aren’t asleep. Large energy companies are the biggest investors into sustainable energy technology, as they try to stay relevant (and profitable).

Tesla might be the most famous producer of electric cars (and it certainly has the most famous and erratic CEO in Elon Musk), but that doesn’t mean it will be the automotive success story of the next decade. Every other car company is trying to catch up, and one of them might well succeed. The Model-T of the 2020s probably hasn’t yet appeared.

Investing for uncertainty

How should one invest in this new world? It’s hard to say. How confident can you be in picking a winning company, or theme, or region? Rather than trying to bet one way or another, a reasonable response is to invest broadly across as many different assets, regions and companies as possible.

That way you participate in areas that are doing well, at least with some parts of your investment. You also end up investing in some areas that aren’t doing so well. But you can be reasonably sure of capturing the big picture trends that will shape the decade.

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