22 September 2020. Photo credit: Google Sites
The global COVID -19 pandemic and the subsequent lockdown has forced companies around the world to adjust the way they conduct their business, while others have needed to pivot by shifting their approach entirely.
While social distancing and remote working have led to an impressive plethora of digital services entering the market, according to Chris Potgieter, Managing Director: Old Mutual Wealth Private Client Securities, these existing technologies represent a mere tip of the iceberg. “If the history of pandemics is a guide, this contagion, like all others, will spark a wave of innovation that is directly proportional to the disruption it caused,” says Potgieter.
“In the context of the coronavirus pandemic that has upset the global economy, it’s fitting to remember that conflict and turmoil have always spurred on accelerated technological development.”
The space race that was ignited by the Cold War between Russia and the USA is a case in point. “One of the most profound of humankind’s accomplishments happened amidst a series of crises occurring at the same time. Today is no different,” he says.
“Innovation is unstoppable because of human desire for discovery and progress. Necessity truly is the mother of invention, and crisis tends to bring opportunity. The lesson for investors is that despite COVID-19 and the geopolitical tensions we’re currently facing, technology will keep advancing — possibly even accelerate as a result of the pandemic — and this creates opportunities.”
There is evidence of this already in the faster and more robust recovery of the major tech stocks as social distancing and remote working have accelerated the adoption of digital services.
Potgieter says the key to recording long-term capital growth is to identify themes or trends that will define our lives in the decades to come. The recovery in much-loved tech giants in the USA and China is in response to how COVID-19 will drive their growth in the short term.
However, “investors need to look further forward to identify the innovations and emerging technologies of the future”.
Potgieter adds that the greatest advances often happen because technologies from different areas intersect and reinforce one another. This is evident today in the advances in hi-tech sectors from artificial intelligence and 5G connectivity to biochemistry and cell- and gene-therapy.
“The USA and China are currently locked in a race for superiority in these fields. And as happened 50 years ago during the Cold War, this conflict will cause technology and Innovation to be developed, perfected and commercialised faster,” he says.
For this reason, investors should be looking beyond the current tech giants to identify the future leaders. Just as many of the current crop emerged from the shift to cloud computing, emerging technologies like artificial and connected intelligence, internet of things and biotechnology will be commercialised over the next decade.
Potgieter says two themes that hold the promise of growth in the future include food technology and healthcare.
Food technology will take on increasing importance as the world population grows. Current projections show that food production will have to increase by 50% to keep pace with a population expected to reach nearly 10 billion by 2050. There will be an inevitable strain on food and water supplies unless we make some major adjustments to how we manage these commodities.
Precision farming and precision biology are two trends that have emerged to ensure that food and water remain abundant in the years to come, with vertical farming technology and lab-grown protein production both on the rise.
“Over the next decade it is estimated that the food technology industry will grow by approximately USD 500 billion. A few major players to watch here are: Nestlé, Zylem, John Deere, Unilever, Ecolab, and Xylem, as well as the University of Wageningen.”
Healthcare will be driven by a growing but also aging population, particularly in developed economies. By 2050, 21.4% of the world’s population will be 65 years old and older. Given that at 65 years old, the cost of healthcare tends to double, the pressure on health services as we move into the future is only going to become more intense. In emerging nations, the lack of basic infrastructure has been shown up as countries have battled pandemic caseloads.
Medical innovations that are proliferating include genome testing, which used to be prohibitively expensive but is now broadly affordable for the middle classes. The next innovations in this sector are likely to concern cellular level intervention and gene editing and modification, with the ultimate aim of eliminating diseases at the genetic level.
While there may still be some way to go in terms of technology and ethics, it is clear that the map has been drawn and growth within the sector is inevitable. Innovation in healthcare is therefore set to increase, making this another sector worth monitoring for investors. Potgieter says three companies to watch are Johnson & Johnson, Medtronic, and Danaher.
He cautions that where returns are hard to predict, investors can gain broader exposure by going through an appropriate Exchange Traded Fund (EFT).
“The key takeaway for investors is that they need to pay attention to companies investing in R&D that will help them to adapt as the market changes,” says Potgieter. “While we are interested in sectors like biotech and 5G, we prefer to invest in multinationals that are spending on R&D, or take sector exposure through an appropriate ETF.”
“By the same token, we avoid companies that refuse to recognise and adopt innovations that will disrupt industries. Sectors we’re keeping an eye on include energy, traditional retail, food production, transport and property.”
What seems fanciful today will seem second-nature tomorrow. For savvy investors who can get an early foot in the door, Potgieter sees a good possibility for creating substantial wealth.