Service sector disruption next megatrend
Technological disruption in the service sector is the next megatrend but it will not leave the same trail of destruction as seen in retail and manufacturing, according to PGIM.
The US$1.5 trillion ($2 trillion) investment management business released a report which investigated the impact cloud computing, artificial intelligence, machine learning and big data was having on healthcare, finance and logistics.
The report drew on the insights of 70 internal investment professionals as well as leading academics, technologists, industry analysts and venture investors.
Its main finding was that disruption in these industries, which had high infrastructure costs, sticky client bases and incoming regulation, would increase the dominance of market leaders who maintained high integration of technology.
According to the research, the services industry now represented three-quarters of the workforce in developed markets, two-thirds of global gross domestic product and more than one-third of the typical institutional portfolio.
With the COVID-19 pandemic accelerating the rate at which technology “radically reshaped winners and losers across the services sector”, PGIM chief officer, Taimur Hyat said long-term investors needed to be forward looking.
“Long-term investors can get ahead of this transformational phase in the services sector by actively positioning their portfolios to capture the investment opportunities and mitigate the risks from this impending wave of technology-driven disruption,” Hyat said.
Hyat said global investors should brace for regulatory backlash across technologies including data privacy, ESG [environmental, social and governance] and anti-money laundering.
“The regulatory environment around start-up banks and payment platforms remains unsettled,” Hyat said.
In the US and Europe, neobanks offered “great potential” but were no threat to big institutions.
“[They are] largely targeting unbanked and disengaged segments of the market rather than prime consumer and business lending clients that are the bread and butter of established consumer and commercial banks,” Hyat said.
And the rising trend of robo-advisers had fizzled because they lacked an expansive distribution network while incumbent wealth management firms successfully integrated automated models into their business.
In logistics, the report said petrol powered vehicles still had a long sunset despite the electric vehicle trend.
“In 2050, for example, when EVs are projected to make up 60% of annual new car sales, the majority of cars on the road will still be fuelled by gasoline,” it said.
And with the US leading the way with electric trucking and China trialling autonomous taxis, PGIM believed autonomous vehicle adoption would continue to evolve in different ways in each geography.
In regards to healthcare, the report said advances in low-cost genetic sequencing was empowering patients to make personalised decisions about their healthcare while new wearable health tracking tools were providing broader perspectives on wellbeing.
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