^{Source: Refinitiv Datastream, December 2019}

The decade ahead

There is good reason to believe we may still be in the foothills of a tech spending boom. In many areas, adoption of new technology is still in the early stages. Cloud computing is a good example. The cloud allows businesses to take their IT “out of the basement” and access the services they need online, at lower cost and more efficiently. Yet only 20% of large global firms have made the switch so far, according to a recent study. This suggests that for industry leaders Amazon and Microsoft it will be a source of growth for years to come. Looking further ahead, developments in artificial intelligence also open up huge opportunities.

In the UK, for example, there has long been a shortage of medical staff able to interpret scans: AI is ideally suited to this kind of pattern-spotting work and trials of its use in this context are already under way.

Unsurprisingly, technology plays an important role in many of the key themes that our equity specialists are thinking about – as summarised in the table below.

One such theme is the internet in Asia. China already has more than twice the internet users of the US. Given its huge population, this represents a still-low adoption rate of just 56%. As the US and China tussle over trade and technology, we expect China to increasingly turn inwards as its online ecosystem continues to develop. This shift will create new tech winners in the years ahead.

Though tech sector share prices have done incredibly well in recent years, we think talk of another bubble is misplaced. The sector today looks very different from what it was 20 years ago – or even a decade ago. It is now a fertile hunting ground for exactly the kinds of businesses we want to own: well-managed, profitable companies with attractive growth prospects.

Seven themes for the next decade

The technological transformation of our lives over the past 20 years is reflected in the biggest themes which we think will shape the decades ahead. The following seven themes, developed by Cazenove Capital’s equity specialists, form the cornerstone of more detailed ongoing research.

Theme	What's happening?	Why?	Investment Considerations
Peak globalisation	The 30-year trend towards freer movement of goods, people and capital is starting to reverse.	Globalisation has not been good for everyone. It has contributed to inequality and the rise of populist politics.	- More protectionism could impact on profit margins - Focus on “capital-lite” businesses
Climate change	The world is getting warmer. The 20 warmest years on record occurred in the last 22 years. Extreme weather has led to large scale displacements.	We have not been reducing emissions fast enough to reduce climate change. China (29%) and the US (14%) are the two biggest emitters.	- Markets start to properly price emissions - Better disclosure - Focus on companies that can benefit from a circular economy
Fragmented world web	Increasingly, the US, China and Russia are developing their own internet ecosystems and closing them off to outsiders.	The trend is motivated by security concerns as well as commercial considerations.	- Trade war turns to tech war - Greater share of tech infrastructure produced domestically - China has 2.6 times more internet users but only 56% penetration. Look East not West
Quantitative exhaustion	Monetary policy has been great for stock and bond markets over the past decade… but investors should expect less from it in coming years.	Even central bankers now admit that monetary policy is nearing the limits of what it can achieve.	- Higher market volatility - Renewed focus on government spending and debt
Demographics	For the first time in history, there will soon be more people aged over 65 than under five.	Increased life expectancy and falling birth rates.	- Changing consumption patterns - Welfare worries: the digitisation of health - “Youth quake” spending vs the “grey pound”
Sustainable capitalism	"Stakeholders not just shareholders"	We expect companies to be more accountable. Regulators and big investors are taking note, requiring companies to improve working practices and disclosure.	- Focus on sustainability and accountability - Rise of long-term thematic investment thinking
Artificial intelligence	"Rise of the machines" and social displacement	Step change in technology infrastructure and “datafication” of everything	- Platform companies - Quantum computing - Productivity and margin

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