Megatrends: Rapid urbanisation

Cities have always been hubs for talent, capital and innovation. In the last decade, hundreds of large cities have been built in emerging economies, attracting significant infrastructure investments. Large cities such as San Francisco, London, Paris and New York have also been the ideal launch pads for entrepreneurs given their large, dense populations. Understanding the advantages and challenges of future cities can help us identify the next sources of growth.

Learn more about the megatrends shaping our future of economies, business and society.

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Supercities:
Economic melting pots

With more people in the world living in cities than ever before, cities’ share of global growth is rising. According to McKinsey as of October 2018, the top 50 cities account for 8% of global population, 21% of world GDP, 37% of urban high-income households and are home to 45% of firms with more than $1 billion (all amounts given in USD) in annual revenues.¹

The constant need
to upgrade infrastructure

As cities grow large, they require significant infrastructure, including
communication networks (e.g. 5G, fibre), transit and transportation (e.g. metro, bridges), social infrastructure (e.g. hospitals, schools) and housing. This was a key driver of commodity demand and fixed investments in the last 10-15 years as China and other developing economies industrialised rapidly and millions of people migrated to cities. This story is likely to continue as other emerging markets follow China’s lead (as discussed in the previous section).

Large cities that offer good infrastructure, greater convenience and attractive job opportunities typically attract global talent. This leads to higher population densities and younger consumers with higher disposable incomes: the perfect ingredients for innovation and entrepreneurship.

Source: ^1. McKinsey Global Institute: ‘Superstars’: The dynamics of firms, sectors, and cities leading the global economy, Oct 2018.

Population growth between 2014-2018

Source: Eurostat - Jul 2019, US Census Bureau Feb 2019, Japan National Statistics - Aug 2019.

What are the investment opportunities?

Young and developing cities, especially in emerging markets, require basic infrastructure and construction (i.e. hard commodities, diggers, concrete etc.). But as they grow in size, opportunities emerge in middle class consumption exposure (housing, appliances, cars). Inevitably, demand for leisure and media grow too, as do services such as waste management and logistics. We seek to understand how cities in major economies are evolving to identify which businesses are the most attractive to invest in.

The need for infrastructure

As cities become even bigger, large scale transport infrastructure, airports and bridges become essential. As electric vehicles become more prevalent, cities will need to invest in charging infrastructure and grids too. Smart cities that link up crucial infrastructure using high-speed connectivity may well become the norm in many economies.

Online platforms and dense populations

In the last few years, new business models that rely on online platforms and dense populations have sprung up in many countries. Examples include online takeaways, last minute delivery, the sharing economy, e-scooters and electric vehicles. Many of them originate in large cities before they gain scale and expand elsewhere. The UN projects that by 2030, the world will be home to 43 megacities with over 10 million inhabitants.² If that is true, there will only be more breeding ground for innovation-fueled growth.

Source: ² United Nations, 2018 Revision of World Urbanization Prospects, May 2018.

Investing in rapid urbanisation with BlackRock & iShares

Our range of thematic funds offer a way for investors to tap into megatrends, which we believe gives investors exposure to companies with structurally higher earnings growth, which in-turn could drive stronger investment returns over the longer term.