Accelerating transformation: Covid and the new era of tech
The Covid-19 pandemic has impacted almost every facet of our lives since its arrival more than a year and a half ago. But among this incredible wave of disruption, perhaps the most profound implications have been in the technology sector. Within the theme ‘Accelerating Transformation’, J.P. Morgan Private Bank developed an investment outlook connecting new technology to changing geopolitics, digitization, sustainability, cryptocurrency, and more.
Technology and U.S.-China relations
In recent times we’ve seen an intensification of competition between the United States and China in the technology space, and while the situation is certainly creating tension, competition isn’t always bad. Competition can help avoid conflict between the two powers, and with ground rules, can drive excellence, creativity, and economic growth.
In contrast, decoupling increases the risk for miscalculation. History has shown that if this competitive dynamic is not properly managed by both sides, there is a real risk of various types of conflict emerging.
Time to embrace ESG opportunities
Environmental, social and governance (ESG) considerations are key to today’s investment outlook, and J.P. Morgan Private Bank recognizes that private sector innovation is playing a crucial role. For many traditional industries, the push for improved ESG is bringing profound change. Using the example of the real estate sector, ESG can mean expense (for instance the cost of installing solar panels or improving the energy efficiency of new buildings), but it also represents new opportunity given the growing customer demand and investment appetite surrounding these considerations.
ESG has also been a major driver of new investment themes and technologies. Electric vehicles (EV) are one of the best examples. EV penetration is expected to hit 20% in China by 2025 – up from only 5% in 2020. The industry is also evolving from a subsidy-driven industry to a more competitive market supported by new technology and better infrastructure. In contrast to the traditional vehicle market, research and development in smart technology is expected to be the key determinant of the long-term competitiveness of each EV business. As a result, the industry shares many of the challenges faced by the IT sector, such as consumer concerns around data privacy.
The green transformation in eating is an ESG theme currently fueling a boom in the food technology industry. Fishing, livestock production and processing have been major sources of carbon emissions and pollution, which is contributing to a movement towards plant-based diets. In recent years the plant-based meats industry has grown rapidly and is expected to be worth more than $35 billion by 2027. Meanwhile, a cell-based meat industry (where scientists take animal cells and grow them in a lab environment) is also emerging. With production costs falling rapidly, a critical hurdle is now diminishing.
Crypto in the spotlight
Blockchain and cryptocurrency are also a hot topic of discussion in this current climate. Much of the focus in this area has been on the value of data rights and digital ownership, and how blockchain technology can empower users and support innovation.
The recent $69 million purchase of a non-fungible token (NFT) by digital artist Beeple through auction house Christie’s is also an important landmark within blockchain, and suggests the future could be bright for this form of ownership and authentication. There are also significant blockchain applications in gaming, where it can provide the tools for users to own video game assets and obtain interoperability of those assets across games, plus enable peer-to-peer business relationships.
While NFTs, blockchain and cryptocurrency are attracting widespread attention, the financial establishment has remained cautious. Chief among the concerns is the fundamental question of intrinsic value given that crypto lacks the backing of assets. The potential for future government regulation is also a concern, as legislators across the world are unlikely to accept cryptocurrencies in their current state.
Key market implications to consider
From a markets perspective, J.P. Morgan Private Bank's high level conclusion is that inflation will rise over the next 18 months, both in goods prices as well as monetary inflation, resulting from the volumes of money being created, in addition to currency depreciation.
Given the recent run in equities, future returns expectations have dropped. In today’s uncertain environment J.P. Morgan Private Bank highlights the importance of portfolio diversification across currencies, countries, and asset classes.