I'm going to be retweeting some charts from our recent project, The Road to 2030. This sets out our framework for thinking about the key issues over the coming decade.
https://ninetyone.com/en/international/how-we-think/road-to-2030

We began the Road to 2030 as a way to think about changes in the whole investment environment. The ex-ante impact of shifts like this year's pandemic on investments are unknown because the probability distributions are unknown, simply because there are too many moving parts.

Think about how much the world has changed since 1970. Then, oil was at $3.2/bbl, the US-Soviet détente had just begun, and Iran's shah was a US protégé.

By 1980, Iran was in revolution, oil was 7x dearer, the US was the largest creditor, while Deng was opening up China.

By 1990, the USSR was within a year of dissolution, and the US was the world’s greatest debtor.

By 2000, China was joining the WTO, and the internet was transforming lives.

By 2010, the US financial system had collapsed; China was the 2nd largest economy.

Managing risk—that is to say, building strategies that are resilient to events like these—is not easy and has never been. Our Road to 2030 project was designed to answer precisely this question.

So how did we go about it? First, we convened internal roundtables with our portfolio managers, external experts and analysts that helped us rank the challenges we face by importance.

We asked many “what if” questions to consider radical changes in the status quo. We considered the investment implications and built scenarios.

Then, we built mind-maps for each theme, generated key charts and scenarios for each of them and debated these at length. We tested our findings with external specialists and academics, and I'm effectively testing them with you on Twitter today.

Thematic investing, which is what this is, is as old as the investing profession, but there has always been some scepticism about it. Themes encourage momentum investing, some say.

Themes are fine, others say, but they don’t pick stocks.

Thematic investors frequently pick too many themes and are therefore overdiversified. Finally, some say themes are just about marketing and sales.

And it's true--if done badly, thematic investing can indeed be all these things.

But done correctly themes are a powerful tool for seeing the wood for the trees. We think themes are useful for 3 reasons:

First, themes help investors generate a clear understanding of the key tailwinds and headwinds that can provide a valuable analytical advantage.

Sometimes getting one big thing right is what is key.

The obvious case is the decline of US sovereign yields, which declined over 40 years from double digit rates to zero, and which provided a tailwind to all kinds of financial assets, and especially duration-led strategies.

Think of the late 1980s, when Japanese stocks outperformed US stocks by 250% in dollar terms. Discussing whether to buy Sony or Nintendo was less important than allocating to Japan in the first place.

Of course, since the 1990s we have been in the middle of a technology bull-market, driven by secular winners in that space, one that has been turbocharged since March.

In all these cases, getting that one big decision right was the most important thing for investors.

Second, themes cut through traditional indices and narrow specialisations by country, region, sector, or market capitalisation. These constructs have been increasingly undermined by globalisation and increased correlations.

The correlation between the Stoxx 600 and the S&P 500 is close to 80% (one reason why investors are excited about less-correlated Chinese equities)

In recent years, it mattered less whether you were in the US or Europe than that you, for example avoided financial firms.

And yet within that sector, payment providers have outperformed substantially, and some EM banks generate extremely high returns on assets.

Within EMs places like Vietnam have increasingly less to do with economies like South Africa, and yet they are all “EMs.”

Themes encourage us to be epistemologically honest. They ask you to clarify what you really do know, and why you are investing in what you are investing in.

Third, themes improve our awareness of the strategic context in which decision-makers act. Themes are a way of thinking as companies and countries think.

This is why we conclude each of our themes with plausible, thought-provoking and analytical scenarios.

These are our five overarching themes: the rise of China, climate change, technological disruption, debt and demographics.

They are not original, but they are important. In our view, they are the most important drivers of market outcomes over the next decade.

I'll start with our China theme. We think China is undergoing three distinct transformations over the coming decade.

First, is the shift from fixed asset investment to consumption. That investment includes the new Zaha Hadid airport in Beijing airport I used on the first page.

As many of you will know from @michaelxpettis' work China has a much smaller consumption share of GDP than its neighbours. Private consumption share of GDP is 12 percentage points below its East Asian neighbours. Whether China succeeds is a key question.

Second, is the shift up the value chain. China is aiming for technological independence in key areas, such as semiconductors. This is why Taiwan lost 3000 chip engineers to China in 2019 as China tried to build its own industry. https://asia.nikkei.com/Business/China-tech/Taiwan-loses-3-000-chip-engineers-to-Made-in-China-2025

Third is China’s outward economic expansion, through projects like the Belt and Road and RMB internationalisation. For example in October, China’s foreign minister was in Bangkok to sign a deal to build a railway from southern China to Bangkok.

Fourth, the US response is a crucial overlay, which will center on security competition and for which Taiwan is going to be crucial. Among other things, data regulation was going to be a major arena of competition. See the excellent work by @RushDoshi @MarkusEconomist.