Some expectations for 2014

13 Jan

Most of the trends that we focus on are trends that will play out over a decade and grind incrementally forward. Climate change, demographics, resource scarcity all fit into this definition. What can change much more dramatically, however, is the reaction of policy-makers, the media and markets to these trends and in this respect we expect significant change in 2014, particularly around the following areas:

Extreme weather – a new normal

Extreme weather caused by climate change is now an established part of the scientific consensus. But we believe that 2014 will see a much broader recognition of this among the corporate and investment communities. Already we are seeing brokers and specialist investment boutiques factor in new assumptions about the impacts of extreme weather on everything from alcoholic beverages to agriculture.

We think this will become much more common in the coming year. We also believe that there will be a wider recognition of the opportunity that more extreme weather offers for companies focused on cleaning up after storm events as well as those businesses helping to make infrastructure more resilient.

Getting to grips with obesity

Growing levels of obesity in both developed and, increasingly, emerging economies is one such trend. It is widely recognised as a problem, but we believe that 2014 will see an acceleration in the willingness of policy makers, corporates and institutions to develop and implement meaningful measures to stem the tide. We began to see this in 2013 with medics upping the ante in their efforts to attract political attention to the issue. In the US for example, the American Medical Association formally recognised obesity as a disease. Drugs for treating obesity are also nearing authorisation and policy-makers from Minnesota to Mexico are actively considering fiscal tools to encourage healthier eating. In some jurisdictions such as Denmark, efforts to implement ‘fat taxes’ have been repelled, but with obesity already accounting for more than 20% of total US medical spend and nearly 50% of adults in the US and the UK expected to be obese by 2030, other approaches will have to be found.

Drive electric

Twelve months ago electric cars still looked at best like they would be an expensive cul-de-sac in the history of the automotive industry. Now it is clear that they represent a significant, if not a dominant, part of its future. For the first time, every single one of the major manufacturers exhibiting at the Frankfurt auto show was displaying at least one hybrid or electric model. The wildly successful launch of the Tesla S-Class, new models arriving almost every month, including most recently the BMW i3, and rapid improvements in technology all but assure that 2014 will be a year of real breakthrough for the industry.

The utility death spiral

Extensive deployment of renewables, and particularly solar photovoltaic technology, in Germany provides a clear indication of what traditional utility businesses in other markets can expect in 2014. Peak power prices – the mainstay of the power utility business – are down from €14/MWh above base-load prices in 2008 to a premium of just €3/MWh in 2013 as a result of solar PV coming on to the grid at scale at midday when peak prices were typically seen. The consequence has been nearly €500 billion knocked off the share prices of European utilities. 2014 is likely to see the same impacts emerging in other European countries and particularly in the US.

Responding to inequality

Finally, one of the enduring impacts of the global financial crisis has been the increasing disparity in incomes between – and particularly within – nations. Again, what we think 2014 will bring is a clearer response from the corporate sector in addressing these changes. We have seen some early effects of this in heated debates about CEO remuneration and this we expect to continue, but we will also we believe see responses in the overall positioning of businesses. Unilever for example are looking to apply some of the business models and strategies that they have developed for ‘Base of the Pyramid’ markets in developing countries to the newly impoverished consumers in developed markets such as in the European periphery.

And of course BIG DATA, but that is another story

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Posted by on January 13, 2014 in Investments


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