Investors should look elsewhere for the “next big thing” following a decade of tech-sector dominance, Mark Haefele, chief investment officer of UBS Wealth Management, said Wednesday.
Since 1973, sectors that led the market over an entire decade had just an 8% chance of repeating that performance over the next decade, according to the bank. Such sectors also had a 25% chance of becoming one of the two worst-performing groups over the next 10 years. If the trend holds up this year, it may be time for investors to ditch tech and consumer discretionary stocks and look for a new market front runner, the world’s largest wealth manager said.
“If the last decade was about investing in the technology sector itself, we think the next decade will reward investing in the disruptors in sectors undergoing technological transformation,” he added.
Here are the four subsectors Haefele pointed to as possible market leaders over the next decade.
The 5G wave
The launch of the first 5G-capable iPhones ushered in a new phase of expansion for the new communication technology. Various kinds of businesses can leverage faster connections to transform over the next decade, Haefele said.
Enablers of the 5G rollout will be the first to benefit, according to UBS. Companies that build and install 5G towers will enjoy a 1900% jump in 5G capital spending over the next five years. Smartphone manufacturers will also thrive.
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Once 5G becomes the new standard, firms that can build novel use cases present alluring investment opportunities, Haefele said. Autonomous driving, augmented and virtual reality, telesurgery, and artificial intelligence applications are just some of the industries likely to expand in a 5G-enabled economy, he added.
Changing how we pay
The coronavirus pandemic accelerated a shift to online payments and e-commerce. UBS expects financial technology firms to become one of the fastest-growing industries around the world.
“Once consumers have grown accustomed to using primarily digital payments, many will not revert to traditional means,” Haefele said, adding growth in digital payments will land in the “low teens” over the next decade.
Looking beyond the medium term, fintech companies will expand into new services including online lending, investing, and insurance-tech, UBS said.
Once the healthcare industry normalizes from the pandemic, technology will play a critical role in boosting efficiency, lowering costs, and improving quality, UBS said. The US already spends nearly $8 trillion on healthcare, but up to 25% of spending was wasted last year on failed coordination, pricing, delivery, and overly complicated treatments.
“We see significant growth potential if emergent technologies can help providers create a more efficient and holistic healthcare system,” Haefele said.
Telemedicine, new treatment technologies, and advanced diagnostics capabilities are the three main areas set to grow considerably over the next decade, according to the bank.
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UBS expects the US telemedicine market to expand to more than $30 billion by 2025 from less than $20 billion today. China’s market will quintuple to more than $50 billion, the firm added.
Governments going green
Governments are taking bigger steps to cut carbon emissions. The EU and Japan plan to go carbon neutral by 2050, and China aims to do the same 10 years later. These goals will boost “greentech” as the world’s largest industries look to benefit from government investment and subsidies, Haefele said.
Countries will push the transition by swapping fossil-fueled power generation with renewable energy, replacing traditional vehicles with electric counterparts, using hydrogen in place of gas in industrial applications, and finding digital solutions for boosting efficiencies, according to UBS. Accordingly, the renewable energy, hydrogen, and battery industries are those best positioned to benefit.
Excerpt from Business Insider