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Pandemic accelerates transformation of investment landscape

Business Monday 30/November/2020 18:18 PM
By: Xinhua
Pandemic accelerates transformation of investment landscape

New York: The almost year-long COVID-19 pandemic is transforming the investment landscape, with multiple long-term trends picking up speed and the world is set to become more digitalised, automated and sustainability-sensitive as lifestyle and economy undergo profound changes, according to experts and investment advisers.


Digitalisation deepens
The faster growth of e-commerce, online entertainment and long-distance work has made people rely more on the digital world.


The skyrocketing stock prices of Zoom Video Communications Inc. and Netflix Inc. serve as good examples of how sweeping changes could bring opportunities to investors.
Globally, the average share of products and services that are partially or fully digitalised reached 55 per cent as of July 2020, up from 35 per cent in December 2019, which represented seven years of the process made before the pandemic, according to an online survey by McKinsey covering 899 C-level executives and senior managers across the globe.


The 5G technology alone creates 619 billion US dollars of annual revenue potential in real-time automation, enhanced video services, monitoring and tracking, connected vehicles, augmented reality and other areas, according to a recent annual outlook report by UBS AG.


"5G enables myriad business models and could spur the growth of a new generation of platform leaders capable of harnessing 5G technology," said the UBS report.
Yearly capital expenditure on 5G equipment production, installation and maintenance is expected to grow from 7.5 billion US dollars in 2019 to as much as 150 billion US dollars in 2025 while more than 1 billion devices would be connected to 5G networks in the next three years, according to UBS. Meanwhile, annual revenues of the fintech industry could rise to 500 billion US dollars by 2030, up from 150 billion US dollars in 2018, with the significant scope of growth in contactless and mobile payments as well as e-commerce, UBS said.


Retailers saw significant growth in online sales, and increasing businesses like restaurants, grocery stores and fashion brands are embracing consumers by offering online options.


US consumers spent 9 billion US dollars on Black Friday of 2020, an increase of 21.6 per cent year on year, according to Adobe Analytics.


"Once customers have grown accustomed to using primarily digital payments, many will not revert to traditional means," said UBS.
Moreover, central banks from Europe, China and other places are pushing ahead the adoption of digital currencies.


Automation gains steam
The evolvement of global supply chains, the COVID-19 pandemic and the fourth industrial revolution are giving automation and robots a greater role.
Technology, telecommunications and electronics players are reshoring their supply chains and automobile manufacturers are resorting to nearshoring operations with consumables remaining offshore, according to Helen Xiao, a senior manager on international tax and transaction services with Ernst & Young.


Some enterprises adopt the China Plus One strategy or build regional supply chains to have additional capacity, flexibility and resilience amid disruptions from trade tensions and tariffs, said Xiao at an earlier webinar.


Meanwhile, millions of jobs lost in the pandemic are partially replaced by robots as social distancing requirements in factories necessitate a bigger role of automation.
The world had 2.7 million industrial robots operating in factories by the end of 2019, which surged around 85 per cent from that in 2014, according to the World Robotics 2020 Industrial Report by the International Federation of Robots (IFR).
Although COVID-19 has a strong impact, it also offers a chance for modernisation and digitalisation of production on the way to recovery, said the IFR.


"Automation enables manufacturers to keep production in developed economies - or reshore it - without sacrificing cost efficiency," the report said.


Major economies like the United States, European Union, China and India are pushing for self-reliance from their respective perspective as the COVID-19 pandemic exposes the vulnerability of supply chains.
"A broader shift in global supply chains could be accelerated by a response to the COVID-driven need for flexibility that could drive both urgency and upside to demand industrial automation," said an earlier research note by Bank of America Global Research.


Heavy Capex spending over China-related supply chain adjustment could bring in over 100 billion US dollars of industrial automation revenues in five years, according to Bank of America Global Research.


In the long run, the automation of the warehouse and factory would benefit from the rise of online shopping and a less globalised world, according to UBS.


Sustainability in focus
Sustainability is focusing attention from consumers, enterprises, social organisation and governments across the globe as mankind suffers heavy losses from natural disasters this year.
The European Union, Japan and China have made promises to go carbon neutral in the next few decades while the new administration of the United States is likely to rejoin the Paris Agreement to combat climate change.


"Although these are long-term targets, we expect governments to start acting in 2021 to stimulate job growth and economic activity, aiding the recovery from the pandemic," said UBS.
Government regulations, investments and subsidies would be geared to using more electric vehicles, green hydrogen, digital solutions as well as renewable energy in power generation, building heating and cooling, according to UBS.
With the world shifting toward sustainability, many of the highest-growth opportunities in the decade ahead are set to be sustainability-related, said UBS.
The demand for greater safety and transparency amid the pandemic may lead to the growth of high-tech foods such as plant-based meat alternatives, added UBS.


In 2020, asset under management in funds which invest according to environmental, social and environmental (ESG) principles has topped 1 trillion US dollars for the first time, according to American financial service firm Morningstar.
Morningstar recently integrated ESG factors into its analysis of stocks, funds and asset managers.


"For companies, evaluating ESG risk is a business imperative to both meet diverse stakeholder needs and mitigate potential legal, operational, or reputational risks," said Haywood Kelly, Morningstar's head of research.


Part of the interest in sustainable investing has been fueled by the pandemic and investors adopt ESG investing as a risk management tool, according to UBS.
Moreover, sustainable equity funds outperformed their traditional peers by a median of 3.9 per cent in the first half of 2020, according to a research by Morgan Stanley Institute for Sustainable Investing covering over 1,800 US mutual funds and exchange-traded funds.