Shifting economic power icon

Shifting economic power

  • What is the impact of this megatrend?
  • What are the potential implications for the future?
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the impact icon

The Impact

3 examples demonstrating shifting
economic power

In less than a generation, emerging markets and developing economies have gone from being producers of goods and trading hubs for developed countries, to becoming an important destination for consumer goods and services in their own right. They now account for nearly 80 percent of global economic growth, and 85 percent of growth in global consumption – more than double their share in the 1990s.1
1. China will be the new global superpower
Two centuries ago Napoléon Bonaparte said, “China is a sleeping giant… when she wakes, she will move the world.”2 How right he was. Only 15 years ago, China’s economy was one tenth the size of the US economy. If it continues to grow as predicted, it will be bigger than the US economy by the late 2020s.2
Shifting Economic Power
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2050
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As a result, and as an example of the urbanisation megatrend, China expects to have 200 cities with a population of over one million people by 2025.2 To tackle overcrowding in Beijing, China is building a new city from scratch 100km southwest of the capital. Initially it will be double the size of Manhattan and is expected to become twice the size of New York and Singapore.3
2. Global demographics will change
In 2016, Asia’s population was estimated at 4.4 billion, having quadrupled in size during the 20th century. As the graph below shows, it is forecast to grow to over 5 billion people by 2050.4

Asia benefits from a wealth of resources, and has an ecological variety which makes it well-placed to support this growth. As a result, we can expect to see further economic growth across this region.4
Asia population growth: 1950 - 2055
shifting economic power chart
Source: United Nations, Department of Economic and Social Affairs, Population Division (2017). World Population Prospects: The 2017 Revision, custom data acquired via website
3. Shift in investor preferences
Traditionally investors preferred the relative safety of developed economies, and particularly the US, believing they offered longer-term sustainable growth potential. Emerging markets offered tactical opportunities that came with increased risk, but potentially greater reward. We’re already seeing a shift towards emerging markets in investment portfolios and this is likely to accelerate as China makes equities more accessible to foreign investors and improves their global trading policies.
The outlook icon

The Outlook

3 implications of this megatrend:

Population growth is at the heart of the shift in economic power. The influence of emerging and developing economies will mean huge changes for business, society and the way we invest.
Opportunities for investors to benefit from these rapid changes means that the small allocations to these areas of the globe in investment portfolios could swell in the coming years.
1. From west to east
Despite some challenges for the Chinese economy driven by debt levels and property market valuations, among other things, the potential long term growth of the Chinese economy relative to the US and Europe looks likely.

China is already on a path to usurp the US as the world’s leading superpower. When it does, political agendas, global trade and the sphere of influence are likely to shift towards Beijing from Washington.
2. Mandarin could become the setting language
The continuing liberalisation of the Chinese economy means the assumption that the world speaks English will likely become a thing of the past.
The US and Europe will steadily lose ground to China and India
Share of world GDP (PPPs) from 2016 to 2030
Share of world GDP (PPPs) from 2016 to 2030 graph
3. Chinese business growth proves unstoppable
China now boasts at least 100 unicorns (private companies with a $1 billion valuation),5 and by the end of 2019 it is forecast to be the largest user of the international patent system.5 It currently lies in second behind the U.S.

An impressive six million enterprises were registered in China last year, up from 2.5m in 2013. 5 The fastest growing sectors included science and technology, entertainment, sport and finance, whilst the number of mining, electricity and gas companies showed a slight decline.6

How do megatrends work?
View our infographic.

'Technological breakthrough' is a catalyst for other trends while also being key to many of the global issues we face.
The interconnectivity that characterises the world today means that none of these megatrends exists in isolation; when trends collide and overlap, new investment themes appear.
To learn more about megatrends, view our infographic below.

Download BlackRock's Megatrend Research Study

An examination of structural shifts in the global economy
  • How are megatrends relevant to investors?
  • 5 megatrends shaping our investment thinking

Investing in themes

We believe there are a number of investment themes that emerge at the intersection of the five megatrends that we have outlined.

Some investors may want to consider employing the skills of an active fund manager to select stocks that provide exposure to a particular theme – as long as they are prepared to pay the associated costs that may come with such investments. Others may want to consider a rules-based approach to thematic investing, whereby a set of rules – rather than a fund manager making an active decision – determine whether a company is connected to a theme or not. Today, investors can benefit from this new, low cost, approach to thematic investing.

Capital at risk. All financial investments involve an element of risk. Therefore, the value of the investment and the income from it will vary and the initial investment amount cannot be guaranteed.

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This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any financial instrument or product or to adopt any investment strategy.