This annual signature event provided us a valuable opportunity to reflect on momentous developments during the pandemic and explore the path ahead.
Asia Market Strategy Team
Head of Investment Strategy for Asia
Global Market Strategist
Global Market Strategist
Global Market Strategist
Last week, the 6th annual J.P. Morgan Tech Exchange was held in conjunction with the Global China Summit. With the theme “Accelerating Transformation”, this year’s event brought together an influential lineup of speakers, providing us a valuable opportunity to reflect on the momentous developments around the world during the pandemic, and explore the path ahead. In this report, we walk through some key takeaways from the event, including macro trends, geopolitics, technology, sustainability and more.
Macro and geopolitical trends in the post-COVID world
The China Summit and the J.P. Morgan Tech Exchange featured some highly prominent business leaders, including Jamie Dimon, Eric Schmidt, and Ray Dalio, who commented on geopolitics, the economic recovery, and post-COVID trends.
A key theme that emerged through these conversations was a focus on U.S.-China tech competition. Eric Schmidt took the view that competition can be the best way to avoid conflict. Furthermore, he said that competition, with ground rules, can drive excellence, creativity, and economic growth. In contrast, decoupling increases the risk for miscalculation. Ray Dalio agreed on the competition point, but stressed that history has shown that if this competitive dynamic is not properly managed by both sides, it raises the risk of different types of conflict. Both Jamie Dimon and David Daokui Li were optimistic about the ability for the Biden administration to manage the conflict. While Biden may not necessarily go “easier” on China, the engagement is quieter, more private, and more strategic. That, in the eyes of David Daokui Li, could result in a new equilibrium with clear areas of competition and red lines.
The views on post-COVID markets and the economy were more mixed. Eric Schmidt was optimistic about the scale of innovation, particularly in healthcare. However, David Daokui Li viewed the global economy as becoming more fractured as a result of the pandemic. Global trust has been damaged and the flow of goods and information could suffer. The world, in his view, could be split into three “worlds”: 1) The U.S. and EU, who are proceeding with vaccinations and have higher tech economies, 2) the developing world, who risk getting left behind by a lack of access to vaccines and less policy space, and 3) China, which is becoming more independent on a number of fronts. But the fractures are not just in global trust; because the pandemic disproportionately affects lower-income parts of the population, inequality has risen, creating a wider societal divide.
Lastly, Ray Dalio shared market views, believing we will see inflation over the next 18 months, both in goods prices as well as monetary inflation that results from excessive money being created, and currency depreciation. Given the recent run in equity prices, future expected returns have dropped, making the investing environment significantly more challenging. But his key takeaway was that today’s uncertain environment calls for a portfolio with diversification across currencies, countries, and asset classes.
The latest on digitalization in China and around the world
Despite concerns about regulatory headwinds, as well as valuation in certain pockets of the tech space, the sector continues to race ahead. The Tech Exchange picked up on several interesting developments from gaming, to EV, and from healthcare to education. In many, if not all of these fields, China continues to charge ahead at full speed. Indeed, as already one of the largest tech centers of the world, the China market continues to grow rapidly. Electric vehicle consumption is a good example. In a short space of time, the sector has gone from an aspiration to an economic reality.
Policy subsidies are falling and competition is rising. Last year’s new entrant has become this year’s incumbent. The fast pace of change means there is plenty of competition, and even giants like Alibaba and Tencent still have to constantly innovate and make big bets about the future. It also means that there are new opportunities under the radar for investors, such as in software, AI, and Fintech. This doesn’t necessarily mean that more regulation isn’t a near-term headwind, but it is clear that the sector still has plenty of growth potential. And from an economic perspective, the digitalization of the service sector, which is over half of the economy – but with only a fraction of the efficiency of the manufacturing sector – will be a big driver of productivity growth in the years ahead.
Online education is a good example. The pandemic has shed light on how technology can make education more equitable as well as accessible. If used right, education technologies can play a big role in closing the income and opportunity gaps between China’s urban and rural areas and between the coastal and inland provinces. This could help to train or retrain the workforce to better adapt to economic changes.
And outside of mainland China, in Hong Kong, real estate investors are taking note of how technology is changing the demand for real estate. This is a theme that we see happening globally, as traditional commercial real estate (such as retail) gives way to real estate being used for data centers and logistics. And in South East Asia, entrepreneurs are taking business models that are successful in the U.S., and in China, and adapting them to local conditions. The Tech Exchange featured some of the success stories in e-commerce, super-apps, as well as delivery. Indeed, many Asian policymakers clearly see digitalization as a force that can bring about economic growth in a way that is also more resilient to disruptions like the COVID pandemic.
Conviction in healthcare as a key megatrend
The COVID-pandemic has caused a lot of human suffering. The need for more equitable vaccine distribution globally was top of mind for a few of our speakers. Some also mentioned the need to build better and more accessible healthcare infrastructure for the future. But there are also silver linings from the pandemic. The unprecedented pace of the development of effective vaccines was a bright moment for science. The healthcare industry will likely be much changed by the pandemic. The mRNA technology rose to the challenge in meeting vaccine needs. This will likely help to boost the trust in this technology from regulators as well as the public in the years ahead, paving the way for its broader usage in treatment for other diseases, such as cancer. Tele-medicine is another emerging trend in the post-COVID world. Testing technologies have been improved as a result of COVID. Patients will likely also prefer not having to go back to over-crowded hospitals. The potential of these investment opportunities will be explored in more detail in the coming weeks.
As China becomes older and wealthier, its consumer preferences are already shifting significantly. Healthcare is now the fastest growing segment of consumption, with many emerging trends from healthcare technology, innovations in medical treatments, and new services and equipment. It’s also an evolving industry with a lot of experiments in new businesses and business models – something that a lot of investors are already focused on. Policies are amplifying the change. Over the last few years, healthcare reforms have materially changed the business models of public hospitals and also significantly expanded the breadth and depth of public health insurance coverage. This means that the industry as a whole will likely grow faster, have more competition, and better reward innovation.
ESG is profoundly transforming traditional industries, and fueling the boom of new industries
The priority of Environmental, Social and Governance (ESG) considerations was one of the key themes of this year’s Exchange, and private sector innovation is believed to be playing a crucial role. For many traditional industries, the ESG movement is bringing profound changes to the business. As Kenny Gaw, President of real estate investment firm Gaw Capital Partners, puts it: a few years ago ESG was something nice to have, now it’s a given – as it’s demanded by customers and investors. In the real estate industry, for example, installing solar panels and designing buildings with energy efficiency considerations could incur extra costs. However, these extra costs could be largely offset by enhanced customer demand and an increased investment appetite. Engaging in green financing can also play a role.
ESG has also been a major driver of new industries, as people change their lifestyle in multiple aspects. Electric vehicles (EV) are one of the first sectors that illustrated this trend. EV penetration is expected to top 20% in China by 2025, compared to only 5% in 2020. The industry is also evolving from a subsidy-driven one to a more competitive market where consumers are excited by numerous product options, new technology, and better infrastructure. In contrast to traditional vehicles, R&D in smart technology will be the key determinant of the long-term competitiveness of EV businesses. As a result, the industry shares many of the challenges faced by the IT sector, such as concern around data privacy.
The green transformation in eating is also fueling a boom in the food technology industry. Fishing, livestock production and processing have been major sources of carbon emissions and pollution, which is leading people to adopt plant-based diets. In recent years we’ve witnessed the emergence of the plant-based meats industry, which is expected to sustain high growth and is expected to be worth more than $35 billion by 2027. Going beyond that, the cell-based meats industry is emerging, where scientists take animal cells and grow them in a lab environment. High production costs used to be the main hurdle for cell-based meats to be commercialized, and that has significantly changed. According to Dr. Ka Yi Ling, co-founder and CTO of Shiok Meats, costs of their lab-grown crustaceans – lobsters, shrimps, crabs, etc. – will be reduced to $50 per kilogram within this year. You may soon be able to have lab-grown shrimp Siu Mai for breakfast.
The debate around blockchain and cryptoassets is set to continue, with varying assessments of their value and utility
Blockchain and cryptoassets are a hot topic of discussion. For speaker Yat Siu, co-founder and chairman of Animonica Brands, the focus is on the value of data rights and digital ownership and how blockchain technology empowers users in those areas. As major technology platforms dominate online networks, blockchain is viewed as a way for users to reclaim their data rights. According to Yat Siu, blockchain is a “foundational trust structure” which builds trust through a network effect involving verification by millions of computers, which can effectively prove ownership of assets. Ownership used to be based on social consensus, but as trust structures in governments and institutions break down, blockchain, and various crypto tokens, embrace the principle of immutable ownership using new decentralized mechanisms. He highlighted blockchain applications in gaming, where it can provide the tools for users to own video game assets and obtain interoperability of those assets across games in a “metaverse,” which can enable peer-to-peer business relationships. Speaker Francis Belin, Asia-Pacific President at Christie’s, acknowledged the origins of non-fungible tokens (NFTs) in gaming and how digital assets can be used and enjoyed as part of an experience.
For investors considering cryptocurrencies, finding a decentralized, open, transparent, and accountable infrastructure is critical. With blockchain, information can be audited as it is a public ledger that includes every historical record. To invest in cryptocurrencies, investors choose between centralized exchanges (similar to traditional ones) and decentralized finance (DeFi). Under DeFi, participants trade directly into the blockchain protocol in an innovative “community-based finance system,” where users can see every trade, build new services, applications, and products based on the chain and earn fees for liquidity provision.
The recent $69 million transaction of an NFT by digital artist Beeple through auction house Christie’s made headlines. Yat Siu believes NFTs are the beginning of digital property rights and highlights how blockchains can ensure immutable ownership of that asset. Francis Belin highlighted NFTs as a significant new category of art and an enabler for digital art, as they prove authenticity and ownership and improve the safety of transactions. However, he acknowledged that established collectors have yet to embrace them. Christie’s is also adapting digitally, including studying the potential for tokenizing art to create liquidity and accepting payments in cryptocurrencies if accepted by the seller.
However, several concerns remain around cryptocurrencies. For speaker Jamie Dimon, chief among them is the fundamental question of their intrinsic value as they lack the backing of assets. Government regulations are also a concern, as they are unlikely to accept cryptocurrencies in their current state, leading to rules that diminish the effectiveness of cryptocurrencies for transactions. Finally, there is scrutiny around the role of cryptocurrencies in ransomware attacks. The debate around blockchain and cryptoassets is set to continue, with varying assessments of their value and utility. (You can access our wider perspectives on Bitcoin here.)
All market and economic data as of June 7, 2021 and sourced from Bloomberg Finance L.P. and FactSet unless otherwise stated.
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