Historically viewed as an imitator, China is leading the next wave of global innovation and investment opportunity, as the Fidelity team explain
We are living in a golden age of innovation and the pace of change is intensifying. For example, it took 70 years for the washing machine to reach full penetration, 20 years for colour television but only five years for social media. We expect the next innovation waves to drive exponential growth in companies that develop, enable and adopt these disruptive forces.
From a geographical perspective, China is at the forefront of the next wave of innovation, partly due to its significant structural advantages. As the so-called godfather of Artificial Intelligence Kai-Fu Lee once said, "Data is the new oil, and China is the new Saudi Arabia".
Data creation, access and analysis are paramount to the development of the next generation of innovations. China has created more data than any other country and continues to outgrow global data growth. Additionally, the country is uniquely positioned at the crossroads of innovations - both as a source and a destination for the most innovative companies.
Domestically, government policy and regulations have long been supportive of innovation, an effect that is now materialising. As such, we believe China's structural advantages make it a fertile ground to develop innovative products and services.
This in turn will have significant implications for the shape of future returns from Chinese equity markets. Indeed, from an investment perspective, we have identified technology, environmental and lifestyle innovation as the three key themes that will be significant drivers of change and growth for at least the next few decades:
Technology: AI and automation have the potential to disrupt almost every sector to varying degrees, much the same way as the internet has.
Environmental: Key areas here include electrical vehicle makers and supply chain, waste treatment and alternative energy.
Lifestyle: For example, China's per capita spend on healthcare is a fraction of that of its developed peers. However, as incomes grow, and the population urbanises, we are likely to see growth in China outstrip other markets.
China is a fertile ground for innovation and its huge market provides companies with the potential to quickly scale up successful innovation. Although the types of innovations will evolve over time, we believe the innovation theme and China's leadership is perpetual in nature.
This information is for investment professionals only and should not be relied upon by private investors. The value of investments can go down as well as up and you may not get back the amount invested. Past performance is not a reliable indicator of future returns. Investors should note that the views expressed may no longer be current and may have already been acted upon. Changes in currency exchange rates may affect the value of an investment in overseas markets. Investments in emerging markets can be more volatile than other more developed markets. Reference to specific securities should not be interpreted as a recommendation to buy or sell these securities, but is included for the purposes of illustration only. Issued by FIL Pensions Management, authorised and regulated by the Financial Conduct Authority and Financial Administration Services Limited, authorised and regulated by the Financial Conduct Authority. Fidelity International, the Fidelity International logo and F symbol are trademarks of FIL Limited. UKM1020/32301/SSO/0320