Global megatrends are multi-decade themes with significant implications for society, the economy and investors. They are driving a wave of new long-term investment opportunities across a variety of industries and asset classes. We have identified four key megatrends which we believe will have the most notable future influence.
From technological innovation, in areas such as artificial intelligence (AI), to protecting the environment, evolving demographics, and the complexities of geopolitics – we see these as the global megatrends driving the future.
These secular, multi-decade stories have major consequences, given that they significantly influence both society as a whole and the wider macroeconomic backdrop. They are generating a wave of new, long-term investment opportunities across industries and asset classes – and will likely fuel investor behaviour for years to come.
These fundamental and pervasive changes shape our strategic investment framework, and help guide how we view society, the global economy and financial markets.
While these megatrends are extensive – each encompasses numerous themes and sub-themes – we have identified four key areas which we believe will have the most compelling economic impact:
- Demographics: Changes in the characteristics, beliefs and behaviours of the world’s population
- Innovation: Alterations in our environment, work and everyday life thanks to technological progress
- Environment: Changes in our physical habitat – most vitally climate change
- Geopolitics: The development of the laws, regulations and norms that govern interactions within countries, and between states globally.
Here we highlight what we see as the main drivers of these four megatrends and outline why we believe they all have important long-term investment potential.
Demographics: Intergenerational trends
Demographic changes profoundly shape long-term economic growth and investment trends. The world has experienced three profound demographic events over the last century: rapid population growth – up from fewer than two billion to over eight billion in less than a century; improved life expectancy across all age groups; and a lower fertility rate, particularly in advanced economies.
Today, populations in advanced economies are much older, and in many places are set to contract over coming decades. Africa will become the last engine of global population growth and home to the world’s youth population. Some 90% of new entrants into the middle class will be Asian.
This split between ageing and younger populations has implications in terms of economics and investing. The new age of longevity is a significant investment opportunity – research shows that some 179 million people are set to retire over the next 10 years in OECD countries. Ageing populations will increase demand for healthcare services and retirement planning, while rapid urbanisation and growing middle classes fuel infrastructure development and consumer spending.
Equally, the coming decades will witness a massive wealth shift. This could have a profound impact on financial markets.
Understanding demographic shifts is critical for investors seeking opportunities across sectors from healthcare and real estate to consumer markets and financials.
Innovation: Beyond the tech sector
Technological innovation is moving at an astounding pace. The digital transformation has become ubiquitous. Technology is helping increase precision and efficiency across a plethora of industries, while breakthroughs in areas such as AI, biotechnology, renewable energy and automation are disrupting traditional industries and creating new markets.
AI looks set to eclipse all others when it comes to the breadth and depth of its socioeconomic impact. Generative AI, which among many other things can create and produce text, images and video, has set off a wave of investment and innovation that continues to build momentum. Consultancy McKinsey believes it could add trillions of dollars in value to the global economy.
AI’s uses and implications, alongside wider technology disruption, mark one of the greatest potential long-term investment opportunities in its design and infrastructure as well as across a high number of industries. Many areas are transforming the world around us – including cloud computing, automation and robotics, and the Internet of Things. These themes are underpinned by foundational technologies including semiconductors, cybersecurity, mobile connectivity and renewable energy.
Fundamentally, innovation can strengthen global productivity and long-term economic growth. Companies investing in research and development in these areas are well-positioned to capitalise on opportunities to boost productivity and tackle global challenges.
Environment: The future of clean energy and natural capital
Climate change with the resulting temperature extremes and humidity, food scarcity and rising sea levels will make parts of the Earth uninhabitable and could exacerbate conflict and the spread of infectious disease. Achieving net zero will require nothing less than a transformation of the economy.
The energy transition demands a reconfiguration of the entire power network – this process is underway, with renewables forecast to account for almost half of global electricity generation by 2030. Within this transition, there are multiple opportunities: in renewable energy, sustainable materials and energy efficiency. Globally, annual clean energy investment needs to more than triple by 2030 to $4 trillion to reach net zero by 2050.
The need to support and finance the transition to a more sustainable future is more important than ever. Despite pushback in some regions, the momentum is there – renewable energy costs are falling, and technology is continuing to tackle the challenge of cutting carbon emissions in areas such as agriculture, steelmaking and chemicals. Innovative technologies are continuously being created and developed, which in turn is giving investors greater access to exciting new businesses.
Geopolitics: The global influencer
Geopolitics captures the ‘rules of the game’ – the national and international laws that govern how individuals, companies and governments behave and interact with each other – and weaves its way into every part of the global economy. It influences global markets via trade tensions, competition for resources and instability.
Political shifts, conflicts and alliances affect industries including defence, technology and energy. These dynamics create risks such as supply disruptions, but also opportunities such as rising demand for innovation and security solutions.
Recent years have seen the traditional rules of the game rewritten as part of a broader realignment in the political sphere which has become more polarised. The most significant change in the economic order has been the retreat from globalisation – driven by a greater appreciation of the risks of relying on long supply chains, but also by a shift in government policy such as the US trade tariffs.
Today, geopolitics is preoccupied with more defence spending as reflected by Europe’s desire for greater autonomy in the wake of changing international trade policy and the war in Ukraine.
The geopolitics megatrend is about risk management and navigating the evolving macroeconomic and political landscape. And as even recent history has illustrated, the prominence of these themes in the investment community can, and will, vary and evolve greatly.
A significant long-term investment opportunity
Megatrends are reshaping our world, revolutionising industries, transforming economies, and opening new frontiers for growth. They are interwoven and interconnected. By considering them together, we can achieve a more rounded perspective on what is driving these gradual, but fundamental changes and better understand what may drive the economy and future investment returns.
As these forces accelerate, they will give even greater rise to compelling investment themes and opportunities that cut across traditional sectors, borders, and market sizes.
The companies riding these themes are often disruptors, thriving in high-growth areas, upsetting business models, and generating resilient, recurring revenues.
Thematic investing is designed to give investors focused exposure to these dynamic opportunities, allowing them to capitalise on the benefits of the megatrends driving the future.
For further reading, see our paper “Megatrends – driving societal change, the economy and financial markets“.
