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          Thematic Commentary – 30 June

          Thematic Investing

          Written by: Tom Barker, CAIA

          Published: 15 July 2023

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          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.

          Sustainable Future of Food1

          FMC Corporation, a leading global agricultural sciences firm and its Ukraine subsidiary, FMC Ukraine, signed a Memorandum of Cooperation with the Ukrainian Ministry of Economy. This aims to support the recovery of the Ukrainian economy, particularly in the agricultural sector by enhancing food security, promoting innovation, ensuring farmer’s safety and providing knowledge transfer and capacity building.

          FMC has committed to supporting Ukrainian agriculture by offering crop protection technologies, promoting safe farming operations, improving agricultural workforce skills, and supporting gender equity in agriculture. FMC will also allocate a percentage of its revenues to support The HALO Trust, a non-profit organization dedicated to humanitarian mine action and the removal of landmines and explosive remnants of war. Additionally, FMC will provide advanced technologies, such as the Arc™ farm intelligence platform and 3RIVE 3D® application technology and offers internship opportunities for Ukrainian students through its LEAD program.

          Environmental Impact2

          In June, The Dutch government announced plans to allocate an additional €1 billion from its Climate Fund for large-scale green hydrogen projects in 2024. This followed an announcement in May that it had budgeted €7.5 billion for green hydrogen by 2030, with a target of 8 GW of installed capacity by 2032. This is roughly the equivalent to the power output of 8 large nuclear reactors or 16 coal-fired power plants! From 2026, the government plans to implement a renewable hydrogen purchase obligation and consider demand-side subsidies aligned with the Renewable Energy Directive (“RED”). RED is a European Union directive that sets out the framework for promoting the use of renewable energy sources and achieving renewable energy targets within EU member states.

          Recently, the European Council set binding targets in the RED II update, requiring at least 42.5% of hydrogen used in industry to be renewable and 1% of transport fuel to be renewable non-biological fuel by 2030. RED II still needs to be approved by the European Council and Parliament.

          Education Tech and Digital Learning3

          Institutions worldwide are embracing virtual, augmented and simulated technologies to enhance student learning experiences. There were some key developments that occurred over the previous quarter. For example, Romania is establishing SmartLabs in over 1,000 schools, which are equipped with advanced tools like modular teaching robots, 3D printers, and virtual reality (“VR”) glasses. MediSimVR and Manipal University College Malaysia are providing VR medical training to MBBS students in India. Savo Vocational College in Finland has partnered with 3DBear to create an immersive learning space with pre-made and customizable augmented reality content. Sorbonne University in Abu Dhabi and INSEAD are leveraging VR to enhance teaching and learning. Meanwhile, Virginia Technical Academy has integrated Interplay Learning’s training courses and 3D simulations into its curriculum, whilst EdX has collaborated with 12 universities to offer a machine learning & AI ‘micro-bootcamp’. These initiatives demonstrate a growing adoption of immersive technologies in education to provide students with engaging and interactive learning opportunities.

          Circular Economy Enablers

          Artificial Intelligence (“AI”) is stealing the limelight in 2023. Whilst it is easy for investors to envisage its positive influence across digitisation-based themes such as cybersecurity or digital payments, AI is also having a significant impact on the physical world – which is very much the realm undergoing our circular economy transition. AI is helping to overcome barriers and create new markets and business models within the circular economy. By leveraging AI, companies can increase product utilization, material efficiency, and the use of recycled materials. A can expand the lifespan of products through over-the-air software updates and the product-as-a-service model. It also aids in designing products with fewer materials, reducing waste and costs. Additionally, AI can enhance the sorting and processing of recycled materials as well as improving the management of resources and materials along the value chain. Investment in AI-driven circular solutions is crucial for unlocking the trillion-dollar opportunity presented by the circular economy.

          Cybersecurity and Data Privacy4

          According to McKinsey, the existing commercial solutions in the cybersecurity market fall short of meeting customer demands in areas such as automation, pricing and services. As a result, there is currently a significant gap between the $USD 150 billion vended market and the potential fully addressable market.  However, the emergence of generative AI holds the promise of transforming this landscape by directly addressing these limitations.

          With only around 10% penetration of security solutions at present, the adoption of generative AI has the potential to bridge this gap and unlock enormous opportunity for cybersecurity companies.  In fact, it is estimated that the addressable market could reach a staggering $USD 1.5 – 2.0 trillion.  This shift towards generative AI has the potential to revolutionise the cybersecurity industry, providing enhanced capabilities and paving the way for substantial growth and innovation.

          Medical Cannabis and Life Sciences5

          In June, Ukraine’s President Volodymyr Zelensky urged MPs to expedite the process of legalising medical cannabis. Zelensky highlighted the need to approve the long-awaited medical cannabis bill, which has been delayed since 2021. The conflict in Ukraine has resulted in numerous cases of post-traumatic stress disorder (PTSD) among soldiers and civilians. The Ukrainian Government claim that over 60% of soldiers suffer from PTSD and about half the population requires psychological support due to the war. Medical cannabis is one solution and can provide benefits that are supported by scientific studies. The bill proposes strict regulations for cultivation, production, and sale, with electronic prescriptions for patients and percentage testing for the psychoactive compound tetrahydrocannabinol (“THC”). While the bill received support from 80 MPs initially, it failed to gain parliamentary approval. The new version of the bill separates medical cannabis from industrial hemp, raises the THC potency limit, and suggests a temporary ban on importing narcotic hemp. Despite public support for medical cannabis, the bill has been awaiting approval for over a year.

          Digital Payments Economy67

          According to FXC Intelligence data, the volume of remittance flows has grown significantly since 2010. Remittances are projected to reach $1.1 trillion in 2025, up from approximately $420 billion in 2010. Europe has consistently been the leading sender of remittances, while on the receiving side this has alternated between Asia & Pacific and Europe. However, Europe is expected to sit firmly on top for receiving by 2025 due to the growth of intra-European remittances facilitated by the Euro and Eurozone payment systems like SEPA. In Asia & Pacific, governments have been exploring international payment systems to compete with Europe as a top remittance receiver. Whilst the US and Canada play major roles in sending remittances within the Americas, European countries continue to have significant flows between each other, with both historically linked nations and newer markets arising from increased intra-European migration. The UK maintains high remittance flows to India based on historical ties and has seen significant flows to Romania in recent years. While digitization and financial inclusion may reduce reliance on established remittance relationships in the long term, evidence suggests reduced dependence on the US in certain countries due to de-dollarisation efforts.

          Pet Care8

          Pets at Home, a leading retailer and provider of pet care services in the UK, announced it had invested in cultivated meat producer Good Dog Food. This forms part of a £3.6 million seed funding that the firm announced earlier in May. The deal has the potential to transform food for our pets and will deliver strategic assistance in bringing cultivated meat, also known as lab-grown or cell-based meat, to the pet market. Pets At Home COO Lisa Miao highlighted the firm’s sustainability credentials: “If we can replace some of the meat and fish used globally in pet food with a more sustainable alternative, that would be a real step change for the industry.” Cultivated meat indeed eliminates the need for traditional animal farming, which is associated with various ethical concerns, such as animal welfare issues and environmental impacts such as greenhouse gas emissions, deforestation, and water pollution.

          Emerging Market Internet and Ecommerce9

          China’s economic rebound slowed in May with year-over-year retail sales decelerating from 18.4% in April to 12.7%. Industrial production also fell from 5.6% to 3.5% year-over-year which was in line with economist forecasts. The China NBS Manufacturing PMIs showed a continuing expansion in the non-manufacturing sector (53.2) but a modest contraction in manufacturing (49.0) in June. The People’s Bank of China continued to provide monetary support, announcing marginal cuts to several key lending rates. Markets in Brazil performed particularly well in June, with the Bovespa index up 9%. This followed GDP growth of 4.0% year-over-year exceeding economist forecasts and optimism over potentially imminent rate cuts. Improved macroeconomic data and signs that accommodative monetary policy will continue were also supportive in India, with the MSCI Emerging Markets India index up +4.7%.

          References

          1

          FWC, “FMC Corporation and the Ukrainian Government sign a Memorandum of Cooperation for agriculture during Ukraine Recovery Conference”, June 2023. Available at: https://www.fmc.com/en/articles/fmc-corporation-and-ukrainian-government-sign-memorandum-cooperation-agriculture-during

          2

          Reuters, “Netherlands increases subsidies for green hydrogen production”, June 2023. Available at: https://www.reuters.com/sustainability/climate-energy/netherlands-increases-subsidies-green-hydrogen-production-2023-06-23/

          3

          HolonIQ Q3 Global Education Outlook, June 2023

          4

          McKinsey, 2022

          5

          Hightimes.com, “Zelensky Pushes Medical Cannabis Legalization To Aid Ukrainians Suffering ‘Trauma of War’”, June 2023. Available at: https://hightimes.com/news/zelensky-pushes-medical-cannabis-legalization-to-aid-ukrainians-suffering-trauma-of-war

          6

          FXC Intelligence, “PayPal revenue rises in Q1 23, but margins disappoint shareholders”, June 2023. Available at: https://www.fxcintel.com/research/analysis/paypal-revenue-rises-q1-23-margins-disappoint-shareholders

          7

          Bloomberg, June 2023

          8
          9

          Bloomberg, June 2023

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