The ongoing digitalisation of daily life is evident when we compare how people live, work and play today with the start of the 21st century, when smartphones were rarely seen, and social media was not a part of everyday vocabulary.
Today, smart devices in all forms (phones, watches, speakers, doorbells) are commonplace and used for a wide variety of activities including entertainment, security, health monitoring, and online and offline financial transactions ranging from simple grocery shopping to ride-sharing, remittances and trading of stocks and cryptocurrencies.
This rapid increase in digital penetration and connectivity is fuelling explosive growth in data, which means businesses and consumers alike are increasingly reliant on computers and machine-learning algorithms to store, process, filter, analyse and make use of the data in ways that humans cannot match. This in turn has spurred the development of new technologies and applications, driving a wave of disruptive innovation that will transform business and consumer behaviour across the world for years to come.
We see a long growth runway for sectors such as robotics, e-commerce, digital entertainment, online gaming or e-sports, and telehealth that are well positioned to ride this wave of innovation, supported by ongoing rapid advancements across a wide range of enabling technologies including 5G and 6G wireless networks, and high-speed, always-on internet connectivity.
The Covid-19 pandemic that started in early 2020 has accelerated structural shifts already in motion across many parts of the global economy, forcing many businesses to adapt quickly to new regulations, social norms and consumer preferences. The experience has been highly disruptive for certain sectors such as tourism and hospitality, while creating powerful tailwinds for others. This underpins our view that the recent market volatility offers opportunities to incrementally accumulate selected quality names in the technology sector.
Exhibit 1: The Covid-19 crisis has spurred disruptive innovations across many parts of the economy, creating powerful tailwinds for multiple sectors
Source: Bank of Singapore
Some of these structural changes may reshape entire industries and potentially lead to broader shifts in the pace of economic development and distribution of wealth across in the world.
Low-wage countries face erosion of cost advantages from increasing automation in higher-wage countries, while the gradual loss of jobs in traditionally labour-intensive industries would have far-reaching implications for educational reform and domestic politics in many parts of the world.
Globally, the proliferation of cheap, high-powered graphics chips over the past decade has super-charged the deployment of artificial intelligence (AI) systems, including multi-layered artificial neural networks modelled on the human brain that enable the “deep” machine learning underpinning many practical AI applications in use today such as facial recognition, and self-driving or autonomous vehicles.
Familiar examples of AI-powered natural language processing – the ability of a computer program to understand and interpret human speech the way it is spoken in its natural form – already in common use today are Apple’s Siri, Amazon’s Alexa and Alphabet’s Google Assistant.
Exhibit 2: Apple’s Siri and Alphabet’s Google Assistant are familiar examples of AI-powered natural language processing applications
Source: Apple, Google
But the potential applications of new AI-enabled capabilities extend well beyond asking a smartwatch for the weather forecast or a home entertainment device to play a favourite song. Ongoing improvements in AI are likely to intersect with rapid developments in other key areas – including 5G and 6G wireless networks; clean energy and decarbonisation technologies; autonomous vehicles; and industrial automation – transforming how we consume goods and services and how we interact with our physical environment at work or leisure.
We expect geopolitical rivalry between the US, China and Europe to be a powerful driver of government incentives and investments in a wide variety of advanced technologies in the coming years.
This competition is evident in quantum computing, where rapid recent advances pave the way for better solutions to a wide range of problems that challenge the limits of conventional computers, including basic research in chemistry and climate modelling, as well as complex optimisation tasks in logistics, finance, data encryption, and artificial intelligence.
In October 2019, researchers at Google said they had developed a quantum computing processor, Sycamore, that took just over three minutes to perform benchmark computing tasks that conventional supercomputers would be unable to complete within a reasonable length of time (requiring 10,000 years or longer). The achievement, known as quantum supremacy, and the associated findings were published in Nature magazine.
Just over a year later, in December 2020, researchers in China said they had created a quantum computer prototype, Jiuzhang (九章), that was able to perform benchmark processing tasks at a rate 10 billion times faster than Google’s Sycamore – thus also surpassing the threshold of quantum supremacy or quantum computational advantage over conventional computing methods. The findings were published in Science magazine.
We expect the race for superiority between the world’s superpowers to continue to drive further rapid advancements in many areas including quantum computing, artificial intelligence, clean energy and decarbonisation technologies in the coming years.
“We’re going to invest in industries of the future – artificial intelligence, quantum computing, biotech. China is out-investing us by a long shot because their plan is to own that future,” US President Joe Biden said on 25 March 2021, just days before unveiling a USD2.3 trillion spending plan that includes proposed investments of USD180 billion in research and development and “technologies of the future”, including climate science and clean energy.
The new (augmented) reality
Other breakthroughs that are transforming the way we live, work and play include advances in augmented reality technologies that overlay information and virtual objects on live camera views of the real world.
These technologies are reshaping and enhancing capabilities in a broad range of applications spanning healthcare, education, navigation, design, manufacturing, and entertainment.
Practical applications range from the serious – including the training of surgeons and pilots – to the frivolous, such as “filters” on popular software applications such as Zoom that allow people to appear as cats on video streams, sometimes inadvertently, as in the case of a hapless lawyer in Texas who struggled to turn off a cat filter during a virtual court hearing in February.
Exhibit 3: Augmented reality technology continues to expand the capabilities of applications used in everyday life, ranging from the serious to frivolous
Source: Google AR, 394th Judicial District Court of Texas.
In retail, the Covid-19 pandemic has accelerated the adoption of augmented-reality fitting rooms that enable online shoppers to try on a product – jewellery, lipstick, clothes, shoes – virtually. Swedish furniture giant IKEA offers a mobile app that allows users to virtually place a piece of furniture anywhere they point their camera, to see how it fits with the rest of their furniture.
Other applications of augmented reality already in use today include virtual tours such as those offered by the Louvre Museum and mobile games such as Pokemon Go.
The revolution will not be televised, but it may be streamed live
The proliferation of online shopping has revolutionised the world of commerce, upending many traditional business models while giving birth to new forms of advertising, including viral marketing and social media influence campaigns that extend the reach of businesses far beyond previous limits.
For instance, China’s top online shopping celebrity Viya or Weiya (薇娅) regularly hosts live-streaming shows that draw tens of millions of people who tune in to watch her sell a wide variety of products. In April 2020, she sold a rocket launch service for around CNY40 million.
Climate change - the ultimate disruptor
As the global economy continues to recover from the worst effects of the Covid-19 pandemic, world leaders are renewing efforts to fight climate change, driven by growing acceptance – supported by the latest climate science – that the threat is existential, and that further inaction will eventually lead to far greater damage to economies and communities.
As a result, businesses across multiple sectors face significant disruptions to their operating models as the world moves to decarbonise. Intensifying global efforts to redirect economic activity towards less resource-intensive modes of production, transport and construction, and to significantly expand the use of clean energy will mean profound structural changes to the way the world economy works – creating both significant challenges and new opportunities for businesses.
These disruptions could take place rapidly as increasingly robust climate policies intersect with new technology to propel low-carbon alternatives to the forefront across the full range of economic activity, triggering a cascade of tipping points and sudden shifts in consumer behaviour.
Worldwide, a growing number of businesses are announcing major strategic transformations to align their future paths with the transition towards a net-zero emissions future, in response to pressure from policymakers, investors and consumers.
From a geopolitical standpoint, China’s heavy investments to develop and expand the use of clean technologies is likely to pressure the US to step up its own investments. This heightened competition will drive innovation and growth, creating new opportunities for investors and businesses. Overall, we expect businesses that adapt to support ongoing efforts to decarbonise all types of human activity are likely to benefit from the strengthening global policy response to climate change.
Exhibit 4: Investment in clean technologies is set to accelerate as China and the US race for climate leadership
Source: BloombergNEF, Energy Transition Investment Trends, 2021.
Note: CCS = Carbon capture and storage.
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Version: July 2020