Chloe Shea, associate investment director, multi-asset, Schroders, said: “Our outlook for equities continues to be positive, because if central banks are to raise interest rates due to the economic upturn, we don’t think this will add much pressure on markets. We also believe inflation is short-term because of the lower base we had from the previous year.”
Despite the market jitters, equity valuations of certain industries remain attractive due to some long-term structural trends. Schroders believes investors should pay more attention to industries that are benefiting from mega themes such as Cities and Lifestyle, and Environment and Sustainability – all of which are already impacting our daily lives and presenting some interesting investment opportunities.
Low e-commerce penetration rate reflects market growth potential
Online shopping is a prime example of the Cities and Lifestyle theme. The pandemic has accelerated the growth of the e-commerce industry as online shopping is now further integrated into our everyday activities. E-commerce has brought in worldwide sales of $4trn in 2020, and this is expected to grow to $5trn in less than two years’ time.
“Despite the expansion of e-commerce we have witnessed last year, market penetration rate remains low, which means there is still much room for growth. Take online grocery shopping as an example, Japan and South Korea have relatively high penetration rates, but that still only accounts for 7% of the overall grocery sales. This reflects the growth potential of the market, and it also reveals investment opportunities around this phenomenon,” Shea said.
“From an investment perspective, online shopping is not just about purchasing goods with our smart devices, it extends to the backend of these e-commerce retailers from online payment systems, information technology, financial technology, financial infrastructure, through to automated warehouse management, logistics and transportation, all of which transcends industry boundaries and geographies,” Shea added.
The future trend of low carbon, sustainable developments
The other relevant investment theme is Environment and Sustainability. In recent years, governments around the world have placed stronger emphasis on environmental protection and sustainable development, and have set various carbon reduction or zero-emission goals.
Renewable energy is certainly an area of attention, as it only accounts for less than 30% of today’s overall energy mix, reflecting further room for growth. But that is not all.
“When thinking about investment opportunities in renewable energy, we need to go beyond clean energy generation and look at the entire value chain. A wide range of industries can benefit from this energy transition story, for example, companies involved in building out the broader infrastructure such as cables connecting offshore wind farms to energy grids, as well as companies that can transport or store renewable energy at the point of consumption. Not to ignore is the electrification of energy. Renewables produce electricity, but electricity is only 20% of all the energy people consume today. To maximize the benefits of renewables, we need to increase the amount of electricity use to 50% by 2050. One of the best ways to get to a more electrified energy system is by using things like electric vehicles,” Shea said.
As with all investments, thematic investing involves investments in securities that could be impacted by cyclical factors. Taking a “multi-thematic” and “multi-asset” approach enables investors to tap into a broad set of opportunities, whilst managing the risks associated with investments in companies that have long-term growth potential.
In addition to Cities and Lifestyle, and Environment and Sustainability, Schroders has also identified another investment theme that presents some interesting opportunities: Innovative Transformation. To find out more, please visit Schroders’ global multi-asset thematic investment page.
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