Longevity, decarbonisation and technology disruption could provide long-term investment opportunities.
Please find this article on the global Morgan Stanley website here. Note that this article was not written specifically for clients based in Australia.
Investors should always be thinking about longevity. But that is particularly true this year, when it’s difficult to look past momentous events that are coming up quickly.
The year has started with markets hyper focused on exactly when the Federal Reserve will cut rates, while the biggest global election year in history is looming in the background. This is all the more reason investors should take a breath and think about three long-term themes that will evolve and endure beyond the news and short-term market cycles. For 2024 we retain two of our three themes from last year—artificial intelligence and decarbonisation—while adding a new one: longevity.
1. Longevity Will Affect How We Plan for Our Financial Future
Living longer has been an age-old human quest, but recent advances in medicine and technology are helping to make it a solid investment theme. In a little under two years, obesity drugs have reached blockbuster status, and Morgan Stanley Research estimates that the new treatments—which have shown they can also reduce the risk of heart attacks and strokes and could be contributing to healthier lifestyle choices—will become a USD$77 billion category in the next decade.
Meanwhile, a revolutionary approach to treating cancer, using a super-targeted approach to destroy diseased cells while sparing healthy tissue, shows promise to revolutionise cancer treatment. This could help make so-called smart chemotherapy a USD$140 billion global market over the next 15 years, up from roughly USD$5 billion in 2022. Add to that the potential for AI to speed the biotech and pharma innovation cycle, which could lead to an additional 50 novel therapies over a 10-year period, translating to a more than USD$50 billion opportunity.
However, longevity’s impact spans far beyond the medical and pharmaceutical sectors. As more people live longer, there will be micro and macro ramifications for demographics, consumer habits, the healthcare system, government spending and long-term financial planning. This will create a nuanced array of opportunities and challenges that investors will need to consider carefully.
2. Artificial Intelligence Will Continue to Disrupt Industries
Generative AI is one of the most disruptive technologies since the smartphone, and its wide-ranging effects on labour and the broader economy are just beginning to emerge. Morgan Stanley economists expect 40% of occupations to be affected by generative AI in the next three years, with associated labour costs of USD$4.1 trillion. In a prolonged tight labour market, accompanied by lacklustre improvements in U.S. productivity growth, AI (and generative AI in particular) should help increase efficiency and output while lowering costs and opening new avenues for income in the gig-earner economy. Beyond the direct tech plays, Morgan Stanley continues to monitor generative AI’s impact across sectors ripe for disruption, including healthcare, education, food production, manufacturing, transportation and more.
3. Decarbonisation Still Presents New Openings for Careful Investors
The world is racing to meet ambitious sustainability goals outlined in the 2015 Paris Climate Accords, as well as various national and company-level targets. Easing dependence on fossil fuels will require vast amounts of capital and innovation, and key to that will be massive infrastructure upgrades and overhauls of carbon-intensive industries.
The transition will be a boon for some industries and a burden for others, with opportunities for investors along the way. For instance, rewiring the supply chain for battery production to meet demand for electric vehicles is expected to require USD$7 trillion in private and public investments in the U.S. by 2040. Similarly, the global aviation industry’s ambitions for decarbonisation will be long and expensive, but could result in billions of dollars of investment opportunity, bringing potential benefit to refiners and chemical companies. And with the increasing likelihood that carbon emissions will outpace government targets, investors may focus on climate adaptation and resilience. Morgan Stanley Research expects the voluntary market for carbon offsets to grow from USD$2 billion in 2020 to around USD$250 billion by 2050 as more companies and countries seek to meet climate goals as other methods to decarbonise come online.
What About the Multipolar World?
The transition to a multipolar world dropped off this year’s list, but that doesn’t mean it isn’t important. When we identify long-term market themes, we expect those trends to persist for years. The rewiring of global commerce will continue to reshape business models and geopolitical relations for decades. Morgan Stanley first raised this trend in 2018, and subsequent events confirmed our view. As a result, this theme has become ingrained in our day-to-day research practices. The topics on this year’s list have not—yet.
