Population growth, ageing and urbanisation in emerging markets are long-term investment (LTI) themes that could help investors hedge against the current bear market amid mounting global economic uncertainty, a report by Swiss wealth manager UBS has said.
UBS expects the three LTI trends to “endure over the next seven to 10-year economic cycle” and outperform the broader market, it said in its annual Thematic Guide.
“With economic and political uncertainty so high and market volatility elevated, we think now is the time to think about long-term investing,” UBS said on Thursday.
“After the sell-off in growth-oriented stocks this year, many long-term themes are cheaper to enter than this time last year.”
Geopolitical and economic uncertainty is increasing around the world, driven by numerous factors that have significantly slowed growth momentum, the International Monetary Fund reported.
In July, the IMF lowered its growth forecast for the global economy for the second time this year, as Russia’s war in Ukraine continues to fuel inflationary pressures and disrupt the momentum of the recovery from the Covid-19 pandemic.
The IMF now projects global growth at 3.2 per cent in 2022 and 2.9 per cent in 2023, after a 6.1 per cent expansion last year.
Global economic uncertainty has also increased volatility in financial markets, which fell into bear territory earlier this year after a 13-year bull run.
“Major central banks have also started tightening the reins of monetary policy due to high inflation, negatively impacting the valuation of long-duration assets, while economic growth concerns are souring investor sentiment even further,” UBS said.
In May, a quarterly survey by UBS found that rising inflation and the Russia-Ukraine war are key concerns for high-net-worth investors globally.
In the UAE, 33 per cent of investors plan to add to their portfolio if stock markets decline further, while another 30 per cent will shift their investments to different sectors, the UBS survey said.
While investor sentiment has dipped, it is important to focus on strategies in a “world of change” that will help investors to identify future growth in markets, UBS said in the Thematic Guide.
“Our themes remain extremely relevant today and allow us to look beyond the short-term noise,” it added.
“This year’s sell-off in growth-oriented stocks — which are represented in many long-term themes — has opened an opportunity to start to build positions,” UBS said.
The LTI ageing theme covers sectors such as robotics, automation, health care, medical devices and health technology, while population growth offers investment opportunities in energy efficiency, agriculture and education, including remote learning, the report said.
Meanwhile, urbanisation in emerging markets will be driven by changing living standards and a shift in the balance between agriculture and manufacturing, UBS said.
“This population shift drastically changes the demand for housing and food processing; shifts water use patterns; alters transport and communication links; and has implications for health care, education and public infrastructure,” it said.
However, the disrupter to all three LTI themes will be technology and the changes it will bring to society, UBS added.
“Technological change, as a disruptive change, is hard to predict with certainty. What is important is that long-term investments have the flexibility to adapt to the consequences of technological change.”