New technology and other innovations are making our current era into an age of disruption, presenting challenges for corporates and national governments, as well as opportunities for investors. Yet this is more than just a tech story; the knock-on effects will be extremely broad as a range of sectors and industries seek to leverage artificial intelligence and other advances. Indeed, the winners will be those corporates – and investors – who most keenly identify the opportunities that change brings and leverage these advances effectively. Here, we highlight three areas where disruption is underway and likely to accelerate – and where change will create opportunities for success.
Disruptive change is creating opportunities for corporates and investors.
Three areas of focus – around technology, resources, and fragmentation – show the causes and effects of ongoing disruptive change.
Navigating this changing landscape will require agility and new ways of thinking about seeking growth – for both corporates and investors.
It now seems clear that artificial intelligence (AI) is set to be one of key transformative technologies of our age. While attention is, unsurprisingly, currently focused on the software providers and other facilitators of AI, the consequences of this new frontier will be felt across the tech sector and beyond. For instance, AI is already driving development in the semiconductor sector, and will keep on doing so as hardware requirements continue to grow. However, it is outside of the tech sector that the disruptive potential of AI will be most keenly felt, both in terms of the transformation of business practices and consumer experiences, but also with respect to shifting the landscape for investors.
Customer service, healthcare, education, and finance are all areas likely to be revolutionised, and AI is already making impressions in some of these fields. For instance, in the healthcare sector, rapid advances in breast cancer diagnosis are being achieved thanks to this technology.1 Yet what will be key for corporates in all sectors affected by the coming AI revolution will be how – and how quickly – they are able to leverage new and changing tech, and adapt to new ways of working. Indeed, corporates will have to find new ways of working with technology and tech providers as rapid advances make previous models of software ownership and licensing obsolete. And those firms that are most successful in making these adaptations will be the biggest winners in the coming years and decades.
Importantly, companies who succeed in integrating AI will need to evolve their mindsets to become more agile and calculated risk-takers, consider internal or external innovation systematically, and alter their financial business models to adapt to a faster pace of development. In an age where cost of capital is no longer close to zero, hurdles to success are becoming higher and even more critical. Embedding AI and new technologies into organisations across all sectors requires a “design thinking” approach, currently most often used in the tech industry, which is not shy of using iteration and frequent testing with end consumers.
Resources: a new scarcity?
With good reason, energy scarcity is a theme that has featured prominently over the last several years. However, the vulnerabilities exposed by the Russian invasion of Ukraine and its fallout are only the tip of the iceberg in terms of the disruption that is underway in both energy and broader commodities markets. Of course, supply issues in gas and electricity markets resulting from recent geopolitical events have only served to underline and accelerate the shift to renewables that has, in the face of climate challenges, been picking up steam for some time. We are currently seeing an explosion in capital investment in the renewables sector, something that is driving demand for various commodities – including rare earths – and will surely further increase the potential for geopolitical tension over access to resources. Indeed, the disruptive effects of the green transition will be felt across economics and politics, and its full implications will likely become clear only in the coming years.
With respect to resources, one further area currently undergoing disruptive change is water treatment and supply. Climate change and rising temperatures shone a spotlight on ageing water infrastructure that is currently not fit for its 21st century purpose. While huge public and private investment is required in this infrastructure, we are now seeing a range of new technologies and approaches to reduce waste and make water storage, treatment, and delivery more efficient. And as climate change threatens to make previously thriving areas uninhabitable, the imperative to develop more innovative water solutions will grow.
The imperative to develop more innovative water solutions will grow as climate change threatens to make previously thriving areas uninhabitable.
Fragmentation: shifting opportunities
We view fragmentation as both a cause and an effect of disruption. Fragmentation, as a geopolitical story, will continue as we see new alignments of states in response to the rise of new global powers, as well as the growing prosperity of many other erstwhile “emerging markets”. Indeed, China has been actively reaching out to much of the Global South through a range of projects, not least its well-known Belt and Road Initiative. Further fragmentation has come from the war in Ukraine, and the fear that geopolitical tension elsewhere in the world may escalate, leading many corporates to take measures to ensure the robustness of supply chains, as well as action from national governments around strategic industries and resources.
The collective effects of this fragmentation along geopolitical lines are likely to be mirrored in economic terms as the major powers vie for advantage and supremacy in critical areas such as semiconductors and data. As China’s tech offering begins to rival the US’s, we may see rival “tech hemispheres” emerge as the largest geopolitical players encourage smaller nations to adopt their systems and standards. Despite this fragmentation, global challenges such as climate change require collaborative solutions, and rival or disparate tech systems will need interoperability, so corporates and governments will need to find new ways of collaborating, even as they express greater autonomy and self-determination. This wave of fragmentation may require new ways of investing that, for example, capture opportunity by theme (such as AI or energy security) rather than being hemmed in by traditional benchmarks.
The effects of the disruptive changes discussed above will be uneven. All sectors and industries will face their own unique issues and challenges, presenting different opportunities for those who are best situated to respond. Indeed, for corporates, an agile approach will be necessary to navigate this time, marked by rapid change and a new “Digital Darwinism” – a race for dominance that will more sharply separate the winners and losers, and create new opportunities for investors. Indeed, investors will also need to be agile and think differently about where growth can be found in this new and exciting era.
Investing involves risk. The value of an investment and the income from it will fluctuate and investors may not get back the principal invested. Past performance is not indicative of future performance. This is a marketing communication. It is for informational purposes only. This document does not constitute investment advice or a recommendation to buy, sell or hold any security and shall not be deemed an offer to sell or a solicitation of an offer to buy any security.
The views and opinions expressed herein, which are subject to change without notice, are those of the issuer or its affiliated companies at the time of publication. Certain data used are derived from various sources believed to be reliable, but the accuracy or completeness of the data is not guaranteed and no liability is assumed for any direct or consequential losses arising from their use. The duplication, publication, extraction or transmission of the contents, irrespective of the form, is not permitted. This material has not been reviewed by any regulatory authorities. In mainland China, it is for Qualified Domestic Institutional Investors scheme pursuant to applicable rules and regulations and is for information purpose only. This document does not constitute a public offer by virtue of Act Number 26.831 of the Argentine Republic and General Resolution No. 622/2013 of the NSC. This communication’s sole purpose is to inform and does not under any circumstance constitute promotion or publicity of Allianz Global Investors products and/or services in Colombia or to Colombian residents pursuant to part 4 of Decree 2555 of 2010. This communication does not in any way aim to directly or indirectly initiate the purchase of a product or the provision of a service offered by Allianz Global Investors. Via reception of his document, each resident in Colombia acknowledges and accepts to have contacted Allianz Global Investors via their own initiative and that the communication under no circumstances does not arise from any promotional or marketing activities carried out by Allianz Global Investors. Colombian residents accept that accessing any type of social network page of Allianz Global Investors is done under their own responsibility and initiative and are aware that they may access specific information on the products and services of Allianz Global Investors. This communication is strictly private and confidential and may not be reproduced, except for the case of explicit permission by Allianz Global Investors. This communication does not constitute a public offer of securities in Colombia pursuant to the public offer regulation set forth in Decree 2555 of 2010. This communication and the information provided herein should not be considered a solicitation or an offer by Allianz Global Investors or its affiliates to provide any financial products in Brazil, Panama, Peru, and Uruguay. In Australia, this material is presented by Allianz Global Investors Asia Pacific Limited (“AllianzGI AP”) and is intended for the use of investment consultants and other institutional /professional investors only, and is not directed to the public or individual retail investors. AllianzGI AP is not licensed to provide financial services to retail clients in Australia. AllianzGI AP is exempt from the requirement to hold an Australian Foreign Financial Service License under the Corporations Act 2001 (Cth) pursuant to ASIC Class Order (CO 03/1103) with respect to the provision of financial services to wholesale clients only. AllianzGI AP is licensed and regulated by Hong Kong Securities and Futures Commission under Hong Kong laws, which differ from Australian laws.
This document is being distributed by the following Allianz Global Investors companies: Allianz Global Investors GmbH, an investment company in Germany, authorized by the German Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin); Allianz Global Investors (Schweiz) AG; Allianz Global Investors UK Limited, authorized and regulated by the Financial Conduct Authority; in HK, by Allianz Global Investors Asia Pacific Ltd., licensed by the Hong Kong Securities and Futures Commission; in Singapore, by Allianz Global Investors Singapore Ltd., regulated by the Monetary Authority of Singapore [Company Registration No. 199907169Z]; in Japan, by Allianz Global Investors Japan Co., Ltd., registered in Japan as a Financial Instruments Business Operator [Registered No. The Director of Kanto Local Finance Bureau (Financial Instruments Business Operator), No. 424], Member of Japan Investment Advisers Association, the Investment Trust Association, Japan and Type II Financial Instruments Firms Association; in Taiwan, by Allianz Global Investors Taiwan Ltd., licensed by Financial Supervisory Commission in Taiwan; and in Indonesia, by PT. Allianz Global Investors Asset Management Indonesia licensed by Indonesia Financial Services Authority (OJK).
Disruption – opportunities in change
Read how disruption is creating opportunities through change, for both corporates and investors, across a range of industries and sectors.
Growing pains? China’s property sector challenges signal an economy in transition
China’s property sector is a significant engine of the country’s economy, and uncertainty around the outlook is weighing heavily on market sentiment. But we view these challenges as growing pains in the shift of China’s economy to a more consumption-led model. What are the opportunities of this transition?