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A powerful megatrend

Digitisation has already radically changed our everyday lives, and this trend is continuing. Rapid developments make it hard to identify future winners and losers − but their potential makes it well worth trying. The fields of robotisation and cybersecurity will undoubtedly produce both.

42% of all work to be done by machines and computers by 2020

Robotisation − Growth driver of the future?

One recurring theme in today's economic discourse is the ageing population. The share of working-age people in the population will decrease compared to retired people, limiting economic growth opportunities. One way of promoting global growth is to become more efficient in using the resources we have. Historically, technological development has been one of the most important factors, and robot-aided automation may be one of the keys.

Many kinds of applications

In the manufacturing sector, robots can be used to perform repetitive tasks that are dangerous for humans, but also those requiring a high degree of precision. Nowadays so-called collaborative robots or "cobots" are becoming more common. Unlike industrial robots that are traditionally kept separate from employees, they are designed to work together with humans.

At warehouses, in agriculture and in health care there is great potential for robots – everything from optimising the dosage of pesticides, thereby lowering costs and adverse economic impact, to providing assistance during surgery.

A potential sustainability boost

Given the potential improvements in efficiency, safety, quality of life and other areas, robots may be a key element in efforts to achieve the United Nations Sustainable Development Goals. By decentralising production and warehousing functions, for example, we can reduce the need for transport, which the World Health Organisation (WHO) cites as one of the fastest growing climate change villains.

The beneficiaries of robotization

The most obvious beneficiaries are the companies that deliver robotic solutions, but also those that most consistently take advantage of robotisation in their business. In both cases, these are most likely found among industrial companies with relatively high technology content, as well as among similar companies in medical technology and development of heavy machinery for agriculture, warehouses and the like.

Of course, these investments carry risks: mainly because these companies specialise in some form of industrial production and work business-to-business. This means their operations are cyclical, to a greater or lesser extent. They are also sensitive to global industrial demand, especially from China, which accounts for much of the world's manufacturing. A new escalation in the US-Chinese trade conflict, greater impact by the coronavirus or a faster-than-expected deceleration in global growth would risk hurting these companies and their share prices. However, for the long-term investor, this situation actually creates attractive buying opportunities. The underlying trend is likely to continue driving the growth of robotisation in the long term.

Cybersecurity − From student network to global spider web

In the early days of the internet, a tightly-knit group of researchers and academics focused primarily on solving the critical technical aspects of the network, rather than the security aspects. Initially, it was impossible for outside parties to access the new network, and group members trusted each other completely. Nowadays the picture is almost the exact opposite − individuals, businesses and public authorities increasingly manage their daily tasks digitally, which places great demands on cybersecurity solutions.

The number of cybercrimes in Sweden rose by 31 per cent yearly in 2011−2018

Cyber crime is one of our fastest-growing security threats. One common way for individuals to obtain some digital protection is to use antivirus software, while businesses are often dependent on several different solutions: for example, data encryption, protection of financial transactions and communications security. Faulty cybersecurity can have enormous consequences, both financially and in terms of brand perception, which is why businesses are increasingly making preventive cybersecurity investments.

Another dimension is added by the Internet of Things (IoT), which means that more and more products are connected to the internet. This requires a high standard of cybersecurity. For example, who would want to climb into a self-driving car if a hacker could suddenly take control of it? Important infrastructure such as power generation plants, hospitals and bridges is also at risk for cyberattacks. There are many potential targets for cybercriminals seeking to inflict harm.

Continued major investment potential

Because of rapid development, the cybersecurity sector is fragmented and includes many niches. Cybersecurity companies generally also have narrow product offerings, and rapid development in the sector can quickly make existing technology obsolete. Numerous fast-growing companies in these fields offer good potential, but given company-specific risks, a broader exposure – for example through a thematic fund or an exchange-traded index fund − may be preferable. In this way, investors can limit the influence of short-term share price fluctuations in individual equities.

There is significantly increasing market interest in this type of equity investment. As a result, valuations are already relatively high. At the same time, growth prospects are very strong and potential economies of scale can make acquisitions a positive driving force in both cybersecurity and robotics in the future. The need for, and benefits of, these products and services is growing every day as technology advances.

Gustaf Blidholm
SEB Investment Strategy

Read more

You can read more in “Theme: Digitisation” on pp. 22-27 in the latest Investment Outlook

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