Thematic Commentary – 31 March
In today’s rapidly evolving market, investors need to stay on top of the latest trends and themes that fuel growth. In this monthly publication, we offer our market commentary across our themes, covering new opportunities and potential challenges. By providing a deeper understanding of our themes, we aim to help you make more informed investment decisions and achieve your investment goals.
The lithium-ion battery industry is poised for a record-breaking year this year as global battery production is expected to exceed 1 TWh for the first time. This marks a significant increase of over 500% since 2018, as reported by Benchmark Mineral Intelligence. The industry has outpaced the expectations of analysts, who predicted in 2018 that we would only reach 1 TWh by 2028. The sector’s growth can be attributed to the surging demand for electric vehicles (EVs) and energy storage projects, incentivised by government policies worldwide. With the growing concern for the environment and the need to reduce carbon emissions, governments worldwide are promoting the adoption of renewable energy and the use of EVs. The demand for EVs and energy storage projects has created a boom in the lithium-ion battery industry, which is expected to continue to grow. Interestingly, 11 times more batteries went into EVs than grid storage in the first quarter of 2023 according to Bloomberg New Energy Finance, which strengthens the case for vehicle-to-grid technology. The increased adoption of EVs and energy storage systems is projected to drive further growth in lithium-ion batteries, making it an attractive investment opportunity for companies looking to participate in the shift towards renewable energy.
Sustainable Future of Food
2022 was the worst of times for plant-based foods. Plant-based meat sales fell substantially, with Bloomberg’s Deena Shanker reporting that US supermarket sales of refrigerated plant-based meats—like Impossible Foods sausage—fell about 14% from December 2021 to December 2022. But it was also the best of times. Many plant-based meat companies expanded into new markets or launched new products, such as the Beyond Meat steak tips. The Food and Drug Administration cleared UPSIDE Foods cultivated (aka cultured or lab-grown) chicken—made from replicating animal cells in vessels similar to those used to brew beer—as safe for human consumption, an industry milestone. The Netherlands announced a €EUR 60 million investment in cultivated meat, the largest amount invested by a government at the time, with Israel, California and other governments increasing their support as well. And Israeli startup Believer Meats broke ground on the world’s largest cultivated meat facility, to be built in the US. This year, we expect governments to start providing long-term, risk-tolerant support for alternative protein research, similar to what they’ve provided to other high-tech industries such as electric vehicles.
Education Technology and Digital Learning
The rapid advancement of technologies, such as artificial intelligence (AI), machine learning and robotics has a significant impact on all industries, including education. To fully utilise AI’s potential in the education sector, it is essential to continue exposing the next generation to AI early on and incorporating this technology into the classroom. Teachers are discovering that many students already use AI through social media, making them more receptive to its educational applications. Furthermore, there is a growing professional demand for AI skills. According to Bernard Schroeder, a senior contributor for Forbes, the US Bureau of Labor Statistics predicts that the data science field will grow about 28% through 2026, indicating strong growth for data science job skills. With the increased use of technology, the demand for data scientists and other AI specialists will also increase, as data operations and analysis sophistication continue to rise.
Medical Cannabis and Life Sciences
Germany is looking into legalising the sale of cannabis for recreational purposes from next year, according to a draft plan Health Minister Karl Lauterbach presented to the European Commission on Thursday, 16 March. The government published draft proposals for the legalisation of adult-use cannabis in October, which it said aimed to improve public health. Lauterbach insisted that they would only progress to the Bundestag—Germany’s federal parliament—if the initiatives are compatible with EU law. Under the plans, cannabis would no longer be classed as a narcotic and citizens over 18 would be allowed to carry up to 30 grams of the drug for personal use. Consumers would also be free to grow up to three plants at home and licensed stores and pharmacies would be able to sell cannabis products. If approved by parliament, the bill could be implemented in phases between now and mid-2024. It would make Germany the world’s largest regulated national cannabis market and the first country in the EU to permit its commercial sale—with potentially sweeping implications for the bloc. In the Netherlands, a country widely associated with legal weed-smoking, the growth and sale of the drug to its so-called coffee shops is technically criminalised, though tolerated. While in other countries, such as Malta, legalisation is limited.
Digital Payments Economy
Valuations across the payments sector have fallen substantially over the past year with Stripe becoming the latest big name to raise funds ($USD 6.5 billion) at a deep discount to its peak. Stripe announced the funding round at a valuation of $USD 50 billion–significantly below its valuation high of $USD 95 billion in March 2021. The drop reflects a more broadly muted market, which has seen companies make considerable cuts to their workforce and provide lower projections for a year that is already being impacted by a cost-of-living squeeze and where many still expect to be impacted by a global recession. One of the other things that caught our attention on 17 March 2023 was the GICS classification change to the Financials sector, which now includes “Mobile Payments and Payment Processing” companies, which were until now classified in the Information Technology sector. These companies have been at the centre of disruption in traditional finance as digitisation has left no sector untouched. Following the official GICS change, the Financials sector now accounts for approximately 14% of the S&P 500 Index vs 11% previously.
The eagerly awaited 2022 State of the Industry data from the American Pet Products Association (APPA) was released in March, offering a comprehensive overview of the pet industry’s performance over the past year. According to the report, the total pet industry sales surpassed an impressive $USD 136.8 billion in 2022, representing an impressive 10.8% increase from the previous year. These figures encompass pet food and treats, veterinary care and products, supplies, live animals, over the counter medications and other services, demonstrating the substantial growth of the pet industry across various sectors. The significant increase in sales can be attributed in large part to higher than anticipated inflation, as well as the growing trend towards pet ownership. Despite the economic uncertainties brought about by the pandemic, people have continued to prioritize their pets’ well-being, driving demand for pet products and services. Furthermore, pet ownership has returned to pre-pandemic levels, following the increase in pet acquisition during the pandemic. As the world slowly recovers from the pandemic, the pet industry is expected to continue growing, reflecting the significant role that pets play in many people’s lives. APPA premiered its State of the Industry data at the Global Pet Expo on 23 March 2023, held at the Orange County Convention Center in Orlando, Florida.
Cybersecurity and Data Privacy
As technology advances, the importance of cybersecurity measures has become increasingly crucial. According to a study by Cybersecurity Ventures, cybercrime is predicted to cost the world $USD 10.5 trillion annually by 2025, representing a significant threat to businesses and individuals alike. The proliferation of smart devices and cloud computing has only added to the complexity of the threat landscape, with cyberattacks becoming more sophisticated and difficult to detect. Furthermore, the pandemic has accelerated the adoption of remote work, creating new challenges for cybersecurity. In 2020, there was a 600% increase in phishing attacks and the average ransom demand increased by 33%, as attackers exploited vulnerabilities in remote work setups. According to a study by Tanium, 90% of businesses experienced a rise in cyberattacks due to remote work. The interconnectedness of systems and networks also means that an attack on one system can have far-reaching consequences for other systems, further highlighting the need for cybersecurity exposure. In fact, according to a report by Cybersecurity Ventures, global spending on cybersecurity products and services is expected to surpass $USD 1 trillion cumulatively over the next five years, with companies spending more on cybersecurity each year.
Emerging Market Internet and Ecommerce
Morgan Stanley published a report in March highlighting its ‘outright bullish’ case on growth stocks in Asia and emerging markets versus their value peers. Gilbert Wong of the bank’s quant-strategies team wrote in a note that “liquidity injections into the US and European financial systems, China’s surprise cut to its reserve requirement ratio… and down-trending US interest rates imply tailwinds are now returning to [emerging markets]”. Recessionary fears in the US and Europe also make the case for emerging markets stronger. For example, developing nations from India to Brazil are reporting declines in consumer-price growth. Annual consumer price inflation in India slowed slightly to 6.44% in February 2023 from 6.52% in January. Brazil’s consumer price inflation eased for the eighth consecutive month to 5.60% year over year in February 2023. South Africa’s annual inflation rate eased for the third straight month to 6.9% in January 2023, from 7.2% in the prior month. This has lessened the need for rate hikes in some of the biggest emerging market economies. Emerging economies on average are expected to grow in the range 4% in 2023 and 2024 according to estimates on Bloomberg. That is way higher than estimates for the US. Emerging market earnings are also starting to improve with China’s economic reopening from COVID-19 as a huge contributing factor. Moreover, China has been loosening its monetary policy (unlike other parts of globe) which provides a good set up for emerging market investing.
PETZ: Rize Pet Care UCITS ETF
 Benchmark Mineral Intelligence 2023, Bloomberg New Energy Finance 2023
 Reuters 2023, Food and Drug Administration 2023
 Forbes 2023, US Bureau of Labor Statistics 2023
 Politico 2022, MJBizDaily 2023
 FXC Intelligence 2023, Financial Times 2023
 American Pet Products Association 2023
 Cybersecurity Ventures 2022, Tanium 2023, Crunchbase 2023
 Morgan Stanley 2023, Bloomberg 2023, Yahoo Finance 2023