4 Unstoppable Trends - Citi Private Bank
CITI P R I VATE BA N K4OUTLOOK 2021Unstoppable trendsCONT E NTS4.1Unstoppable trends are changing the world4.2Greening the world4.3Digitization: The age of hyper-connectivity is upon us4.4The rise of Asia: Asian development in a “G2 world”4.5Increasing longevity: The healthcare opportunityINVESTMENT PRODUCTS:NOT FDIC INSURED·NOT CDIC INSURED·NOT GOVERNMENT INSURED·NO BANK GUARANTEE·MAY LOSE VALUE68
CITI P R I VATE BA N K4.1Unstoppable trendsare changing the worldS T E V E N W I E T I N G - Chief Investment Strategist and Chief EconomistUnstoppable trends are reshaping the worldaround us. As well as transforming the wayswe live and work, they are creating long-termopportunities and risks for portfolios. Unstoppable trends are powerful multi-year phenomena thatare transforming business and everyday life As disruptive forces, they create both risks and opportunitiesfor your core and opportunistic portfolios Our latest trends focus upon this new era of 5G-enabled “hyperconnectivity” and the transition to a more sustainable world We continue to advocate the existing trends of The rise of Asiaand Increasing longevityUNSTOPPAB L E TRENDSOUTLOOK 202169
CITI P R I VATE BA N KUNSTOPPAB L E TRENDS70By their very nature, these trends are multi-yearand powerful. As such, they continue to evolvethroughout economic cycles. In turn, havingportfolio exposure to the likely beneficiariesof these trends can provide resilient growthpotential. By the same token, we also adviselimiting exposure to businesses and sectors thatare most likely suffer as these disruptive forcestake hold and accelerate.Amid the worst pandemic in more than a century,it might seem counterintuitive to focus uponanything apart from COVID-19 and its fallout.After all, the virus and the measures in responseto it have affected almost every aspect of lifein 2020. In financial markets, COVID’s eruptionmoved every single asset price in the world, andits departure will likely do the same. Despitethe pandemic’s present influence, though, thereare many forces that will have a much greaterbearing upon portfolios over time. We call these“Unstoppable trends.”An Unstoppable trend is a major, multi-yearphenomenon that is more than likely to transformthe world around us. These trends take manyforms, including technological advances,demographic developments and new behaviors.They often appear comparatively slow moving,but tend to gather force and influence overtime. In the process, they increasingly presenta fundamental challenge or threat to the statusquo, ultimately impacting every industry andevery investment portfolio.OUTLOOK 2021Over the last two years, we have recommendedthat you build portfolio exposure to a variety ofUnstoppable trends:The rise of Asia addresses the steady shift inglobal economic power from West to East, drivenby the region’s urbanization, growth of themiddle class, and advancements in home-growntechnologies.Increasing longevity explores how the aging ofthe world’s population will impact future growthand consumption patterns, with an emphasison healthcare.The events of 2020 have certainly reinforcedour case for investing in Unstoppable trends.Many of the assets that relate directly to ourexisting themes have performed strongly amidin the pandemic. In fact, technologies developedover the past ten years served as substitutes forentire economic ecosystems when the pandemiccollapsed part of the global economy. For themost part, digitization companies such as onlineretailers, telemedicine providers, teleconferencingproviders, social media and digital entertainmentproviders have enjoyed increased demand owingto social distancing and lockdown measures.Digitization recognizes how digital innovationis revolutionizing companies and industries,shaking up long-established ways of doingbusiness. Artificial intelligence, automation,robotics, cybersecurity and fintech are among theelements that we have highlighted.Some of the key markets and sectors linked toThe rise of Asia, meanwhile, have also shownnotable resilience in 2020. This is especially trueof China, whose total equity market capitalizationmade a new all-time record high in October2020. Likewise, renewable energy sources havecontinued to perform better than global equitiesin general and traditional energy in particular, inline with The future of energy.The future of energy highlights how weexpect advancing technologies to drive globaladoption of alternative energy while fossil fuelsgradually fade.Admittedly, the strong performance of manyassets related to our unstoppable trends duringthe pandemic has left many of them very highlyvalued. When COVID-19 retreats, many of the
CITI P R I VATE BA N KUNSTOPPAB L E TRENDSOUTLOOK 202171economic and market distortions that it hascreated are likely to unwind. Some companiesand sectors that have proved most vulnerable tolockdowns and social distancing may continue tooutperform in 2021 and beyond, but others maysee revenue growth slow or even reverse. Weadvise that you position portfolios accordingly –see Exploiting mean reversion.To be clear, though, we recommend maintainingcore portfolio exposure to our existingunstoppable trends for five to ten years or more.We very much expect these trends to persist,both in the near term and over the long term.Indeed, the pandemic may have acceleratedsome of them. However, we also caution againstexcessive exposure at this point. Price gains fortechnologies in 2020 have resulted in many fullallocations to digital disruptors from becomingvery large overweight positions. This calls forrebalancing, rather than complete divestment.For 2021 and beyond, we present two newunstoppable trends:As part of Digitization, we highlight the rollout offifth generation or 5G wireless data technology.We believe this development will mark a newphase of the digital revolution, enabling a vastincrease in the number of devices connected tothe internet. In Digitization: The age of hyperconnectivity is upon us, we make the case forinvesting in both the enablers and beneficiariesof 5G.Greening the world concerns the world’stransition to a more sustainable existence. In2020, electricity from renewable energy becamecheaper than that from key fossil fuels forthe first time ever. This is likely to hasten thegreening of energy use over the coming years. Wesee potential arising from further technologicaladvances, electrification and an energyefficiency drive.As before, our latest trends are offered asadditions to – rather than replacements for – ourexisting trends. We therefore take the opportunityto update and reiterate key elements of The riseof Asia and Increasing longevity.
CITI P R I VATE BA N KUNSTOPPAB L E TRENDSOUTLOOK 20214.2Greening the worldM A L C O L M S P I T T L E R - Investment StrategistJ O S E P H F I O R I C A - Head of Global Equity StrategyMarket forces – rather than government mandatesalone – are now powering the switch from fossil fuelsto renewables. The investment case for renewablesjust became even more compelling. The “greening” of energy supplies is now being driven bymarket forces more than legislation We expect further gains in technological innovation,electrification and efficiency in coming years We identify multiple potential beneficiaries such electriccarmakers, battery makers, infrastructure suppliers andinstallers, and smart appliance makers By contrast, fossil fuel energy companies are likely to comeunder increasing pressure over the coming decades72
CITI P R I VATE BA N KUNSTOPPAB L E TRENDSWhile the world has been preoccupied withthe worst pandemic in more than a century,the business of renewable energy has passeda major tipping point. Throughout its entirehistory, the adoption and use of renewables hasbeen supported by incentives, good intentionsand legislative mandates, rather than marketforces. In 2020, however, clean energy becamethe cheapest new source of electricity in most ofthe world – FIGURE 1 . It achieved that progressdespite dramatic falls in the price of oil, for whichdemand collapsed amid the economic downturn.Some day, of course, there will be a floor tothe cost of solar and other forms of renewableenergy. That said, previous energy revolutions,like the transition from whale oil to petroleum,have resulted in paradigm shifts in the productionand usage of energy that contemporaryobservers could never have predicted. We believethat the same will likely be true with this latestenergy revolution. Once economics drive theadoption of renewables, the model for theirdelivery and financing change as well, furtheraccelerating the substitution of better andcleaner forms of energy for dirtier technologies.OUTLOOK 202173Today, there are actually three complementaryenergy shifts occurring simultaneously. As wellas technological innovation and rollout of newsources of energy, electrification and a greatefficiency drive are underway. Together, webelieve these three forces form part of a muchbigger unstoppable trend. We call this trend“greening the world,” a multi-faceted transition toa more sustainable world.In 2021 and beyond, we believe these trendswill accelerate, driven by market forces andmandates. The need to rebuild from the economicdamage of COVID-19 has seen Europe, Chinaand some policymakers in the US make concreteplans to reduce emissions and “greening” theirpower grids.FIGURE 1. CLEANER ENERGY IS NOW CHEAPER TOOGlobal solarLevelized cost of electricity ( /mwh)300US natural gasChinese natural gasUS coalChinese coalRenewables accelerateRenewable energy is now the cheapest newsource of power in most of the world’s majoreconomies. For example, solar is the leastexpensive new source in the US, China and India.In nations with less abundant sunlight such asthe UK and Germany, wind is the least expensivenew source. A notable exception is Japan, wherecoal remains the least expensive source of newelectricity generation. Herein lies an importantpoint about energy generation: no single sourcewill be the most economical everywhere, as thenatural endowments of sun, wind, geothermaland hydro vary widely according to location.20010002012201420162018Note: Fossil fuel energy prices are depicted at their 2020 levelized cost for clarity. Source: Bloomberg as of 28 Oct 2020.2020For investors seeking exposure to renewabletechnology, this multi-source dynamic is not a
CITI P R I VATE BA N Kmajor issue. The manufacturers of both solartechnology and wind turbines can both prosper asmarket forces determine the right technology foreach location. However, investors should be waryof projects that are not well suited to a particularlocation.The main winners from the transition torenewable energy sources are likely to be energyconsumers, both households and companies.The biggest losers will be within the traditionalfossil fuel industries. We also see potentialwinners among energy producers. In 2020 todate, the MSCI Global Alternative Energy Indexhas outperformed world equities. And it hasoutperformed the traditional energy sector to aneven greater extent – FIGURE 2 .UNSTOPPAB L E TRENDSOUTLOOK 202174FIGURE 2. RENEWABLES’ SHINING PERFORMANCEJan 2019 100MSCI Global Alternative Energy IndexMSCI AC WorldMSCI AC World Energy Index2201701207020Apr 19An electrifying trendAs the price of electricity falls, end-users ofenergy will find it less expensive to use electricityinstead of traditional fuels. This transition willrequire new technologies in areas as diverse asvehicles, heating and large-scale manufacturing.It is the innovators of these new techniques whoare most likely to thrive in our greener energyfuture, as firms that cling to traditional methodsfind themselves facing a shrinking market and anunsustainable cost curve.Burning fuel releases energy in the form ofheat. It is then possible to harness and convertthat heat into electricity. For many applications,however, the process ends earlier. When heatingbuildings, for example, there is no need to goJul 19Oct 19Jan 20Apr 20Jul 20Oct 20Source: Bloomberg, as of 4 Nov 2020. Indices are unmanaged. An investor cannot invest directly in an index.They are shown for illustrative purposes only. Past performance is no guarantee of future returns. Real results may vary.through the trouble of converting fuel to heat, heatto electricity, and finally back into heat. Using oil ornatural gas boilers and furnaces avoids this costlyround trip. Likewise, in many industrial settings– such as chemicals manufacturing – energy isutilized as either heat or movement without everpassing through a wire. Heat, motion and electricityare all forms of energy, but it is expensive in termsof waste to transform one type into another sofactories have had an incentive to use their energysources wisely. For instance using fuel to spin asteam turbine and then using the defuse heat toaccelerate a chemical reaction. These sorts ofsolutions have been built up over generations,and will require creative new technologies to takeadvantage of abundant clean electric power.In transportation, the example is crystal clear.Battery-powered electric car sales are rapidlyramping up. New industries, like charging stationvendors, have arisen. Markets have taken note, withthe equity value of global electric vehicle producersand their suppliers rocketing up in 2020. Themost prominent example is Tesla, whose marketcapitalization stands at more than one-third of theMSCI Global Auto Sector Index, despite selling onlya little over 0.5% of all cars worldwide in 2019.
CITI P R I VATE BA N KAmong new heating technologies, improved heatpumps are also changing the game. Rather thanthe notoriously inefficient process of creatingnew heat from electricity, these pumps moveheat around instead, effectively functioning asair conditioners running in reverse. New air andgeothermal heat pumps are approaching costparity with fossil fuels for heating and are alreadyless expensive than traditional compressionbased air conditioners.For industrial applications, electrification willlikely find a mix of solutions with heat pumps,electric motors and existing hydrogen turbinespowered by green sources of hydrogen. Whilegovernments around the world may pass laws andgreen energy targets, falling prices will ultimatelydrive the mass electrification of industry, asproducers can otherwise relocate to avoid highertaxes and tougher regulations.Likely beneficiaries of electrification includeelectric carmakers, battery makers and,eventually, heavy industry innovators.UNSTOPPAB L E TRENDSOUTLOOK 202175Efficiency: Batteries now includedAs more appliances and vehicles undergoelectrification, energy efficiency will becomeincreasingly important. This means getting themost out of batteries and helping utilities managedramatically higher usage.A prior case that shows how efficiencyimprovements might play out is through thestraightforward shift to LED lighting. Earlyiterations of this technology were often inferiorto traditional lightbulbs, combining odd shadesof light, humming transformers and high upfrontprice points. However, market forces andtechnological improvements have since solvedthese teething problems.Even as the emerging green energy revolutiondrives down the price of electricity, efficiencygains are likely to continue rapidly. Part of thishas to do with how much efficiency is due toimprovements in mobile computing as computersrequire less power to perform well. Likewise, oneof the key factors behind electric cars’ growingappeal is their ability to achieve similar or betterperformance with far less energy.Battery technology remains a relatively expensivelink within the electrification chain. Getting themost out of the least electricity will continue todrive down power usage even in the face of fallingelectricity prices. Efficiency gains often comeaccompanied by a host of other improvements,making use of cheap computing to establish“smart grids” that can efficiently toggle power tolower overall usage, or just reducing heat wasteand the need for additional cooling in industrialspaces and data centers alike.Emerging technologies in residential andcommercial buildings have enabled two-waycommunication between grids and appliances,enabling some appliances to be “turned off”when they are not needed. In addition, tightlyregulated heat pumps and other heating,ventilation and air conditioning systems will makefor more comfortable and attractive residential,commercial and industrial spaces. Faced with theopportunity to make structural improvementswhile offices remain empty during the presentpandemic, a number of commercial real estateinvestment trusts (REITs) have sought to undergolarge-scale efficiency upgrades. Their aims areto lower costs and increase the attractiveness oftheir properties.Likely beneficiaries include the suppliersand installers of residential and commercialinfrastructure, as well as battery makers, “smart”appliance manufacturers, and select REITs.
CITI P R I VATE BA N KUNSTOPPAB L E TRENDSOUTLOOK 2021A greener future post-COVIDMake your portfolios greener, tooThere is a growing consensus that the worldneeds to find new and better ways of doingthings once the pandemic is defeated. Switchingto cleaner and more sustainable sources ofenergy is an obvious example of how we cando this. At the same time, there is a belief thatmany governments will probably borrow andspend more in order to stimulate growth in thecoming years. Capital investment in renewableenergy and related infrastructure will likely play aprominent role in such initiatives.There are many wise ways that you can buildexposure to the greening of the world inportfolios. Targeting firms at the cutting edgeof new energy development, electrification, orenergy efficiency can offer exposure to thisunstoppable trend.The European Union’s 750bn recovery fund willhave a green emphasis, both in terms of focus aswell as fundraising. The EU has promised to raise30% of the required debt by issuing green bonds.In addition, it has pledged that all of the spendingmust contribute to its emission-cutting goals.In addition, a number of EU-wide green taxesare under consideration to support the eventualrepayment of the fund.As part of its COVID recovery plan, China in Aprilannounced an extension of electric car subsidiesand tax breaks through 2022. Previously, thesewere set to expire in 2020. What is more, Chinahas started spending 1.5bn to grow its electriccar-charging network by 50% in 2020. PresidentXi Jinping lately announced China’s goal ofreaching carbon neutrality by 2060, planninginvestments of more than 5 trillion in renewablepower generation, while shuttering coal-firedplants or retrofitting them with carbon capturetechnology.76At the same time, shifting out of fossil fuelassets could avoid the negative impact from themost obvious losers of the transition. That said,the benefits from fossil fuel divestment havediminished as traditional energy has fallen tobelow 3% of global equity market capitalization.To date, most publicly-traded innovators in greentechnology tend to skew towards European- andChinese-listed firms, while many US opportunitiesare in the private space or at the project level.Finally, while we see many areas that thegreen revolution is only beginning to touch,we suggest a strong focus on cost and quality.Green energy and transportation did not becomeUnstoppable trends until they were price andquality competitive. With global policy aligningwith improving economics, we see the globalwinds blowing towards a decade or more ofintense investment and innovation in renewabletechnologies.
CITI P R I VATE BA N KGreening your portfolioas the world goes greenHARLIN SINGH UROFSKYGlobal Head of Sustainable InvestingThe switch from fossil fuels to renewables isintegral to the process of “greening the world.”However, it is also only one facet of our transitionto a more sustainable existence. This is as truefor investors as it is for the whole of society. Theemergence of a gr
4.1 Unstoppable trends are changing the world Unstoppable trends are reshaping the world around us. As well as transforming the ways we live and work, they are creating long-term opportunities and risks for portfolios. Unstoppable trends are powerful multi-year phenomena that are transforming business and everyday life
Products Group, Citi 1-713-752-5405 roxana.popvici@citi.com Mike Curry Head of North American Commodities Structured Product Group, Citi 1-713-693-6866 mike.curry@citi.com Financing Global Renewable Energy with DFIs Georges Romano Regional Head of Export and Agency Finance Latin America, Citi 1-212-816-6158 georges.romano@citi.com
As far as they re concerned, the church is a failed institution. I disagree. The church is far from a lost cause! In reality, the church is unstoppable because the followers of Christ have been given an unstoppable power the very Spirit of God. Even more, they ve been given an unstoppable mission and message.
As far as they re concerned, the church is a failed institution. I disagree. The church is far from a lost cause! In reality, the church is unstoppable because the followers of Christ have been given an unstoppable power the very Spirit of God. Even more, they ve been given an unstoppable mission and message.
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Cambridge IGCSE and O Level Accounting 1.4 The statement of financial position The accounting equation may be shown in the form of a statement of financial posi
