[Editor’s Note: Some megatrends can be overhyped in the early stages and some securities leveraged to these trends can be volatile due to uncertainty about an emerging trend, such as artificial intelligence or decarbonisation. Moreover, a megatrend’s near-term potential might already be reflected in company valuations and megatrends typically produce more company losers than winners in the long-term. Thematic investing via ETFs has additional risks. These include higher concentration risk because thematic ETFs typically invest in fewer securities compared to broadbased ETFs. Higher fees with thematic ETFs – and potentially lower liquidity in underlying securities in an index – are other considerations].

1. Artificial Intelligence

Artificial Intelligence (AI) was one of the most searched internet terms in 2023 [1], catapulted by the launch of OpenAI’s generative AI tool, ChatGPT, which has grown to over 100 million weekly active users [2].  

Global X believes this is just scratching the surface of AI’s potential, with the theme far from being a one-hit-wonder. AI is at a crucial juncture in its adoption cycle, with the most rapid growth occurring in the “early majority” phase of the “S-Curve” as the chart below shows.

Source: Global X Thematic Adoption Menu (November 2023)

Global X believes sales growth across the AI category can potentially exceed 50% in the year ahead, well above the 5% sales growth expected in the broader share market [3].  

The addressable market for AI services, including the full ecosystem of hardware, software, and data, is set to expand in the coming years, estimated to grow by double digits to $1.6 trillion by 2028 [4]. 

Global X believes the broader AI universe will continue to move from the experimentation phase to rapid adoption and monetisation, with investors in AI companies being key benefactors. 

Identifying successful players can pose a challenge, particularly as some companies may not be able to leverage AI capabilities and large language models without undermining traditional revenue streams. 

For diverse exposure to this megatrend, investors may consider exploring exchange traded funds (ETFs) that track a basket of artificial intelligence benefactors, semiconductor companies or technology stalwarts.
 

2. Uranium: Nuclear Energy’s Role in Global Decarbonisation 

With net-zero targets looming and the increasing cost of non-renewables, nuclear energy has quickly risen as a key piece to help solve the global decarbonisation puzzle. 

Despite facing criticism following the Chernobyl incident in 1986 and the Fukushima disaster in 2011, there has been a notable shift in the nuclear energy narrative.

At the 2023 United Nations Climate Change Conference (known as COP28), a declaration was signed among 22 countries to triple nuclear energy capacity globally by 2050. It also invited international financial institutions (such as the World Bank) to encourage the inclusion of nuclear energy in lending policies [5].  

Uranium prices have rallied to US$91 per pound, the highest level since 2007, as the chart below shows [6]. With the large number of nuclear reactors in the building pipeline and the current supply deficit to meet growing demand, the price of uranium has support, in Global X’s opinion.

An important distinguishment between a “fad” and a long-term structural theme is whether there are strong governmental or institutional initiatives. 

Considering climate change is at the front of minds for global nations, combined with favourable momentum in public and private markets, the uranium industry is positioned to grow, in Global X’s opinion.

Australia has a large uranium resource base but only delivers 8% of the total production, as uranium mining is prohibited in most Australian states [7]. Investors wanting to get exposure to the uranium decarbonisation theme should expand their investment universe to consider global players, in Global X’s opinion.

As uranium lacks a liquid spot market like gold and copper, investors could consider investing in an ETF tracking a broad range of global companies involved in uranium mining and the production of nuclear components.
 

3. Changing of the guard in Emerging Markets

An emerging market is characterised by higher levels of economic activity, growing per capita income, and improving industrialisation. 

While emerging markets have lagged developed markets over the past decade, there have been some recent green shoots, in Global X’s opinion.

China confronts challenges going into 2024, and there is a prevailing expectation that the world's second-largest economy could encounter difficulties in fostering economic growth. 

China’s central bank announced record cash injections to help bolster the economy as it faces headwinds of weaker consumption, a heavily indebted property sector, an aging population, and ongoing political and trade war tensions. 

However, investors are looking past China, with eyes locked on India as the bright star of emerging markets. In Global X’s opinion, India has emerged as one of the better structural opportunities backed by significant economic, social and political drivers. This changing of the guard in the emerging market leader is a monumental shift in the investment landscape. 

The International Monetary Fund is projecting the Indian economy to grow more than 6% in real GDP in 2024, whereas the IMF cut its forecast for China, which it expects to be more subdued at 4.2% [8]. India is investing heavily in its economy as it looks to become a developed economy by 2047. 

In under three years, India's stock market has expanded by US$1 trillion, reaching a valuation surpassing US$4 trillion [9]. India now stands among the top seven largest share markets globally, underscoring its growing prominence [10].  

A decade ago, India accounted for slightly over 5% of the emerging markets universe, which has since tripled to reach 16%. In contrast, China's market share has contracted by a third since the Covid-19 pandemic.

This sea change is evident by India’s population surpassing China’s, its democratic government supporting technology and innovation, hosting the most recent G20 Summit, growth of the consumer credit market, improving literacy rates and lowering levels of poverty. India has strong demographics with half of the population being under the age of 60. 

Finally, global companies (such as Apple) are diversifying their supply chains from China to India, which could help propel further infrastructure development and economic growth. 

Traditionally, Australian investors looking for exposure to India had to invest through instruments like mutual funds as many brokers cannot access Indian equities. However, with the average Indian mutual fund charging 1.2% in fees [11]  and the fact that most active funds underperform the market over the long-term, investors can look to pay a fraction of the cost and get exposure to an Indian share market index like the NIFTY 50.

Conclusion

Although the future of 2024 remains uncertain, investors can strategically position their portfolios for megatrends in the areas of AI, decarbonisation and emerging market demographics. 

While exercising patience and poise is essential, the accessibility of ETFs on the ASX enables investors to tap into these trends through a single trade.

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[1] Investopedia (2023). Terms of the Year 2023
[2] TechCrunch. (2023). OpenAI’s ChatGPT now has 100 million weekly active users
[3] Global X (2023). The Next Big Theme: December 2023
[4] Global X (2023). Inflection Points: 4 for 24 – Themes to Watch for Next Year
[5] United Nations (2023): Summary of Global Climate Action at COP28
[6] Barrons (2023): Uranium Price Hits Highest Level In Almost 17 Years
[7] World Nuclear Association (2023)
[8] IMF (2023): October 2023 World Economic Forum
[9] Bloomberg (2023): India Stock Value Tops $4 Trillion
[10] CNBC (2023): India overtakes Hong Kong to become the world’s seventh largest stock market
[11] Morningstar database of open-ended funds domiciled in Australia with an Indian focus.

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