Predictions about technology trends are always big news in investment. And it’s not hard to understand why.
For a start, they make great stories. As the world’s decades-long fascination with robots illustrates, people love to see science fiction becoming science fact.
More importantly, news about technology trends helps to predict the future economic landscape – signposting new investment opportunities and warning against sectors or businesses whose better days may be behind them.
On the face of it, studying technology trends is useful for the investor, but beware! Economic predictions around technology need to be treated with great care, and that’s not just because the technology itself is uncertain.
The reign of the robocab?
Self-driving cars are an obvious example of the need for caution. The Economist highlighted them as one of the stories of the year in its ‘World in 2019’ predictions, forecasting the market could be worth $550 billion by 2026.
However, the adoption of autonomous vehicles will not depend on technology alone. Social acceptance and regulatory attitudes will matter too, and a few high-profile fatalities involving driverless cars could well change the investment picture.
Long-haul – the long-term view?
Another major story for 2019 was a predicted surge in long-haul air travel, following the opening of mega-hub airports at Istanbul and Beijing.
Here again, though, technology trends may rub up against changing social attitudes. How many people were talking about Greta Thunberg (the Swedish environmental activist) and Extinction Rebellion (a global environment movement) this time last year? And what will be the effect on air-travel trends if passengers have to pay the cost of offsetting carbon?
With other big technology themes too – artificial intelligence (AI), Internet of Things and many more – what happens next will depend on the shifting balance between technological advances and social/regulatory attitudes.
Lessons for investors
On a simple level, the lesson of technology trends for investors is not to go head over heels for one particular technology or product. From ‘Railway Mania’ in the 1800s, to Betamax video in the 1900s, to Segway in the 21st century, there are plenty of cautionary tales about technology creating too much excitement, or not enough.
At a more complex level, investors should also be aware that micro-stories around specific technology trends can create wider financial ripples. The fizz or fizzle of emerging technologies, such as autonomous vehicles or AI, will likely have wider implications for economies, stock markets and global trade in the future.
So, what does this mean for investors?
Diversification and the real world
In a world awash with uncertainty, diversification is a practical investment approach. By investing across different assets, trends, markets and regions, investors can position themselves to benefit from different technological and economic scenarios.
In practice, though, many investors may be less diversified than they think. For example, an investor seeking global equity exposure may decide to track something like the MSCI World Index. But, they may not know the MSCI World Index covers only 23 countries in the world, and doesn’t cover any Chinese companies.
Does that matter? Well, going back to our technology theme, it’s a reasonable guess that, whatever happens with autonomous vehicles or air travel or other technologies, Chinese businesses, consumers and regulators will be both influencers and beneficiaries. An investor in search of diversification might want to reflect that.
We’re certainly not criticising the indices here, nor the funds that track them. We’re simply saying that diversification is a strategy much talked about, but less often achieved. In an uncertain world with an uncertain future, investors may need to think differently.