By Rachel Pether
CFA, Member of CFA Society Emirates
-SG: ARTIFICIAL intelligence is all around us, from self-driving cars to algorithms that freakily predict our cultural interests. Exponential increases in computing power and the availability of vast amounts of data, combined with billions of people now being connected by mobile devices, open up unlimited possibilities.
As an investor or investment professional, it can be difficult to keep up with these emerging technology breakthroughs. Across all industries, the degree of innovation is accelerating and having a major impact on businesses. Simultaneously, we are also at a point in time where Central Bank monetary policy has led to many traditional asset classes being at historically high multiples of GDP. This overvaluation, combined with the growth opportunities in asset classes such as AI and robotics, makes non-traditional sectors extremely attractive.
However valuation and long-term sustainable trends, avoiding hype and transient investments. This thinking offers a significant margin of safety when investing in high, investors do need to be careful – any investment philosophy should centre on growth sectors.
So where exactly do the greatest opportunities lie and how do investors access them? Widespread productivity and efficiency gains (cost reduction, process enhancement, etc.) mean that technological disruption is affecting nearly every industry or sector.
Several strong multi-year technological trends are underway that investors are looking to capitalise on. This includes:
• Fourth Industrial Revolution: robotics, artificial intelligence and automation are penetrating every industrial sector, yet it remains hugely underinvested.
• Platforms: a number of players continue to lead the way in mobile, cloud and data ownership, underpinning multi-year demand growth.
• Enablers: data is growing in both scale and importance be it within security, payments, user experience or storage. Companies that are setting the pace and innovating in this area are well positioned as future market leaders.
• Networks: this is a fast evolving segment comprising enterprise or social networks that will continue to penetrate homes and workplaces.
• Globalization: while many technologies are nurtured in the US, often the growth potential is higher in developing markets, where uptake is at an earlier stage or markets are more fragmented or smaller and thus overlooked.
A key trend is the development of technology-enabled platforms that combine both demand and supply to disrupt existing industry structures, such as those we see within the “sharing” or “on demand” economy. These technology platforms, rendered easy to use by the smartphone, convene people, assets, and data – thus creating entirely new ways of consuming goods and services in the process.
We have seen the Middle East’s commitment to such technologies on a Government level – whether it’s through the (nearly) US$100 billion SoftBank Vision Fund where sovereign wealth funds in the UAE and Saudi Arabia have committed US$60 billion, or Dubai’s ambitious Smart Dubai plan, which sees it implementing smart technologies with the goal to become the world’s first paperless and blockchain-powered city. And this is before we’ve even looked at advancing Hyperloop or building the world’s first flying drone taxis.
There are many life-changing trends that are evolving, and the level of digital progress seems to be increasing exponentially. When it comes to capitalising on the fourth industrial revolution, it is important to distinguish between hype and genuine opportunity. Like any revolution, some concepts will become part of the everyday fabric, and others will simply fade away. It is advisable to carefully select investments and remember to take a long-term view: technology and early stage equity returns are highly illiquid and can take 7–10 years to generate. However, the overvaluation of many traditional asset classes, combined with the incredible growth opportunities offered by technology, certainly make this an interesting space and one where the returns are wThe very nature of ‘disruptive’ growth makes it difficult to persistently and accurately predict, but whenever making any investment decision, it’s worth remembering the principles of the CFA Institute Statement of Investor Rights, which has been published in many languages, including Arabic. This short document is designed to help investors clarify what to expect from an investment management professional, and identifies the important questions to ask before committing to an investment decision. Whether you are making a growth investment, working with a broker, opening a bank account or buying a home, the same principles apply to help you get the information you need and the service you deserve. This includes fair treatment, disclosing any potential conflicts of interest, full transparency over fees and ensuring information is communicated in a timely and accurate manner.