The next decade will see an urgent and widespread boom in investments in innovation across all economic sectors. This technology wave will be in both private and public sectors, with much of it driven by geopolitical imperatives, not just economic value. Deep water waves represent the powerful, long-term drivers that face investors, fundamentally altering the economic, political, and public-policy foundations for asset prices. Accelerated by COVID-19 and intensified by socioeconomic pressures, climate change, and geopolitics, these forces will exert themselves on every facet of investment portfolios for years to come:
- Driven by national security as much as economic considerations, wealthy nations at least appear set to urgently invest in technological innovations. The use of automation will accelerate across all sectors.
- Widespread adoption of automation requires urgent deployments of certain enabling technologies such as 5G, but also accelerating the development and implementation of artificial intelligence (AI), machine learning applications, and quantum computing, across sectors.
- In most cases, innovation breakthroughs require new or updated legislation to account for the transparency of algorithms, safety, and fundamental rights. This adds a layer of complexity that that most impacts in democracies.
- The usage of innovative technologies in service sectors has the potential to revolutionize the structure of job markets in advanced economies that have become more service-sector driven. The disadvantages are the capital requirements and the relatively long lead-time to reaping the resultant boosts to productivity, and the geopolitical struggles between the United States and China will be an important additional driver beyond economic value considerations.
- The biggest impact of the “innovation wave” likely will be felt in the boosts to productivity provided by the relatively easy rollout of automation in the most underpenetrated industries and countries.
One potentially underappreciated side effect of this drive to “digitalize” will be to demonstrate an increasingly outdated convention in asset management: labelling “developed” and “emerging” markets; Investors should first identify the best-in-class companies and then be clear-eyed on the limitations of the countries where they are operating. For further in-depth analyses, please read the Franklin Templeton Investment Institute’s Deep Water Waves.
What Are the Risks?
All investments involve risks, including possible loss of principal. The value of investments can go down as well as up, and investors may not get back the full amount invested. Past performance is not an indicator or a guarantee of future results. Stocks historically have outperformed other asset classes over the long term, but tend to fluctuate more dramatically over the short term. Special risks are associated with foreign investing, including currency fluctuations, economic instability and political developments. Investments in emerging markets involve heightened risks related to the same factors, in addition to those associated with these markets’ smaller size and lesser liquidity. Investments in fast-growing industries like the technology and health care sectors (which have historically been volatile) could result in increased price fluctuation, especially over the short term, due to the rapid pace of product change and development and changes in government regulation of companies emphasizing scientific or technological advancement or regulatory approval for new drugs and medical instruments. Small- and mid-capitalization companies can be particularly sensitive to changing economic conditions, and their prospects for growth are less certain than those of larger, more established companies.
Important Legal Information
This material is intended to be of general interest only and should not be construed as individual investment advice or a recommendation or solicitation to buy, sell or hold any security or to adopt any investment strategy. It does not constitute legal or tax advice. This material may not be reproduced, distributed or published without prior written permission from Franklin Templeton.
The views expressed are those of the investment manager and the comments, opinions and analyses are rendered as at publication date and may change without notice. The underlying assumptions and these views are subject to change based on market and other conditions and may differ from other portfolio managers or of the firm as a whole. The information provided in this material is not intended as a complete analysis of every material fact regarding any country, region or market. There is no assurance that any prediction, projection or forecast on the economy, stock market, bond market or the economic trends of the markets will be realized. The value of investments and the income from them can go down as well as up and you may not get back the full amount that you invested. Past performance is not necessarily indicative nor a guarantee of future performance. All investments involve risks, including possible loss of principal.
Any research and analysis contained in this material has been procured by Franklin Templeton for its own purposes and may be acted upon in that connection and, as such, is provided to you incidentally. Data from third party sources may have been used in the preparation of this material and Franklin Templeton (“FT”) has not independently verified, validated or audited such data. Although information has been obtained from sources that Franklin Templeton believes to be reliable, no guarantee can be given as to its accuracy and such information may be incomplete or condensed and may be subject to change at any time without notice. The mention of any individual securities should neither constitute nor be construed as a recommendation to purchase, hold or sell any securities, and the information provided regarding such individual securities (if any) is not a sufficient basis upon which to make an investment decision. FT accepts no liability whatsoever for any loss arising from use of this information and reliance upon the comments, opinions and analyses in the material is at the sole discretion of the user.
Products, services and information may not be available in all jurisdictions and are offered outside the U.S. by other FT affiliates and/or their distributors as local laws and regulation permits. Please consult your own financial professional or Franklin Templeton institutional contact for further information on availability of products and services in your jurisdiction.
Issued in the U.S. by Franklin Distributors, LLC, One Franklin Parkway, San Mateo, California 94403-1906, (800) DIAL BEN/342-5236, franklintempleton.com – Franklin Distributors, LLC, member FINRA/SIPC, is the principal distributor of Franklin Templeton U.S. registered products, which are not FDIC insured; may lose value; and are not bank guaranteed and are available only in jurisdictions where an offer or solicitation of such products is permitted under applicable laws and regulation.
CFA® and Chartered Financial Analyst® are trademarks owned by CFA Institute.