Investors should see past the current market volatility and focus on long term opportunities across companies providing solutions to population growth, ageing and urbanisation in emerging markets, according to investment bank UBS.
The UBS Longer Term Investment (LTI) report contains thematic investment ideas based on long term structural developments.
"Our themes remain extremely relevant today and allow us to look beyond the short-term noise. After the sell-off in growth-oriented stocks this year, many long term themes are cheaper to enter than this time last year”, the UBS Global Wealth Management’s Chief Investment Office (CIO) said.
In the LTI report, ageing was the number one theme, as “the ageing of societies is one of the easiest predictions to make about the future.”
Investors considering investing in companies working with the theme of ageing as a long-term investment should look at the growth in robotics alongside the “wide sphere” of medical treatment, prevention and old age care.
This includes everything from oncology, medical devices, health technology and genetic therapies as well as companies focusing on “ageing in comfort” the report said.
"Companies in the financial, consumer, healthcare and retirement home sectors will benefit from this theme," according to the report.
Companies that focus on healthy nutrition and the personal care needs of ageing consumers can help people to live better and should also be considered by investors thinking long-term.
While the world’s population is getting older, it is also getting larger. Population growth was the second trend highlighted in the report.
Despite falling birth rates in select countries, the fact that people are generally living longer means that the global population is still expected to grow to almost 10 billion people by 2050 — that’s an increase of 25% from today’s level.
As population growth stretches the world's resources further, humans have to "become adept at doing more with less (what economists call 'productivity'), and this is where private investment opportunities are likely to arise," according to the report.
Energy efficiency and agricultural efficiency are expected to be two critical areas of focus.
The need for agricultural efficiency as the global population increases is likely to lead to further urbanisation, creating investment opportunities across emerging markets.
“In emerging economies, changing living standards and a changing balance between agriculture and manufacturing and services still argue for urbanisation.
“This population shift drastically changes the demand for housing and food processing; shifts water use patterns; alters transport demand and communication links; and has implications for healthcare, education and public infrastructure,” the report said.
Ageing, rising incomes, and urbanisation will drive healthcare demand in emerging markets (EM) to outpace the growth of their economies and of healthcare spending in developed markets, the report said.
One such emerging market economy for longer term investment is China. China has experienced dramatic economic gains in the past quarter century. In 1990 China made up 1.5% of the world economy. In 2015 it was 15%, according to UBS.
On top of the region’s favourable demographics, other drivers of investing in EM healthcare include biopharma innovation and a growing biologics industry.
UBS predicts that growing urbanisation will mean "emerging market infrastructure spending will comprise two-thirds of global infra spending by 2025".
UBS GWM sees tech as a major disruptor that investors can bet on, as “smart automation will power the Fourth Industrial Revolution”.
Emerging markets' "use of robotics is still far behind developed countries, while the need to drive productivity gains, rising wages, and the size of the manufacturing sector make them an attractive region for automation equipment”, the report said.
Most advanced agricultural production leaders can increase already-high yields with optimisation and technology.
“We think companies that help boost agricultural yields, though cyclical in the short term, can dependably increase sales along trend growth rates over the long term,” the report said.
UBS GWM also sees opportunities for 3D printers in businesses requiring rapid prototyping and high customisation with small production quantities.
As consumer behaviour changes, UBS expects "15-20% growth of e-commerce annually in the next 10 years due to rising smartphone and internet penetration, an advance in technology and improving consumer convenience", offering attractive long-term opportunities.
The rise of commercial drones should also not be ignored by investors as e-commerce and logistics companies begin to experiment with drone technology.
Thinking about consumer experience as a long term theme, UBS GWM said traditional areas such as travel and leisure in combination with emerging, virtual segments like the metaverse, games, e-sports, online events around art, sports, culture and entertainment, and social media are “key investment opportunities”.
For instance, video gaming is second only to football in popularity worldwide. Around 3 billion people will play video games around the world this year, exceeding the number of fans who will watch a game of hockey, tennis, volleyball, table tennis, basketball, and others.
The most-watched tournament in 2021 was The League of Legends World Championship, with 184 million hours of live feed watched on Twitch and YouTube.
Traders have had to navigate turbulent markets in recent months and UBS is warning investors to prepare portfolios for further volatility.
Expectations are mounting that the Federal Reserve may hike rates in what would be the third consecutive 75-basis-point rise this cycle at its meeting later this month.
“While we expect the August CPI release to provide further evidence that US inflation is easing, peak inflation has not yet been reached in the Eurozone or UK, in our view. And we believe the Fed will require at least three months of reassuring inflation data — along with evidence of a cooling labor market — before considering softening its tone," Mark Haefele, chief investment officer, UBS Global Wealth Management.