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Those that had previously benefitted from an increase in technology spending on areas such as machine learning, cloud computing and cyber security had been the suppliers of the technology. Now however, we are at the early stages of a transformation where the companies deploying these technologies, having spent vast amounts with the suppliers, are in the position to capture long-term return on that investment.
In our view, mega-cap banks, industrials, and utilities (through the revolution in renewables) – three large sectors in the large cap value index – are showing this transformative ability most strongly.
An industry as traditional as banking has adapted to modern life through the ability to manage almost all your banking needs through your phone or laptop. This ability has increased the need for market- leading cyber security, among other aspects, and we have subsequently seen huge spending on tech from this sector.
Almost 50% of US bank technology spending is on new investment, compared to only 33% in Europe. This investment in technology is reshaping financial services dramatically with the best players evolving with consumer behaviors and having the potential for success over the next few years.
Meanwhile, 5G and robotics are in the early stages of transforming industrials with automation and data. The emerging 5G transformation of virtually every industry, based on the hyperconnectivity between people and things, will enable a new era of connected machines. The value of these connections comes from the data interchange.
The largest application of 5G will be industrials. According to McKinsey, by 2030, 22.3 million Internet of Things (IoT) unit sales of the total forecasted 44.8 million will relate to manufacturing, construction and mining, supply chain, and agriculture. Big industrial firms in machinery and equipment, aerospace, logistics, and even waste management are going to transform their business models with connected machines and data, becoming more efficient and, we believe, more profitable as a result.
Unlike most European nations, the development of economically viable renewables is in its infancy in the US. Because it is at an early stage in the investment cycle, we expect there will be ten to twenty years of meaningful investment into these viable renewable projects.
Renewable energy capacity in the US is forecasted to increase from approximately 137 gigawatts in 2021 to 200 gigawatts in 2022, and to 500 GW in 2030, according to the National Energy Renewable Laboratory.
As the cost of renewables continues to decline below that of fossil fuels, the utilities sector is likely to see large-scale changes. With that in mind, we expect to see over $400bn in capital expenditure for renewables over the next ten years.
Unless otherwise stated, all information contained in this document is from Amundi Asset Management S.A.S. and is as of 4 March 2021. Diversification does not guarantee a profit or protect against a loss. The views expressed regarding market and economic trends are those of the author and not necessarily Amundi Asset Management S.A.S. and are subject to change at any time based on market and other conditions, and there can be no assurance that countries, markets or sectors will perform as expected. These views should not be relied upon as investment advice, a security recommendation, or as an indication of trading for any Amundi product. This material does not constitute an offer or solicitation to buy or sell any security, fund units or services. Investment involves risks, including market, political, liquidity and currency risks. Past performance is not a guarantee or indicative of future results.