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What tech changes mean for investors

The notion of rapid technological change is not a new one. Barely a day goes by without a story of possible job displacement thanks to the ‘rise of the machine’, or how disruptive technologies – AI, alternative proteins – are set to threaten traditional industries as we know them.

The major drivers of future innovation are likely to be materials science, (such as new fibres and nanotechnology), artificial intelligence (AI), energy (self-powering devices, battery storage, etc) and additive manufacturing (such as 3D printing).

Innovation often comes from external factors as big organisations can be ‘clunky’ and slow to move from a technology standpoint. Managing innovation and disruption are key leadership issues that businesses need to learn how to navigate in order to succeed in a rapidly-changing world.

Taking a closer look at the fields of AI and automation - just as electricity revolutionised and transformed everything 100 years ago, today, there is arguably no industry that AI can’t transform. Chris Hopkins, the CEO of Scott Technology (which has customers in 75 countries around the world) strongly encourages New Zealand businesses to take full advantage of automation and robotics.

The size and scale of our domestic market, coupled with a low population base, spread out cities and limited manufacturing capabilities mean New Zealand companies (including Scott Technology) are increasingly looking off-shore for new opportunities. For Kiwi investors, this could result in some interesting opportunities.

Investing in tech

Change is inevitable, so how does this relate to investments and, ultimately, wealth creation?

The tech sector is vastly under-represented in the New Zealand domestic equity market. While Serko and Scott Technology may offer compelling investment prospects, tech investing further afield has also been profitable over the last five years.

This year’s US technology initial public offerings have gained an average of 77 percent, weighted by offering size. That return has grown from 66 percent as recently as June 11, 2018. All other new US listings (non-tech) average a 12 percent return.

While these outsized returns feel unsustainable, it does reflect both the interest in the tech sector and investors increasing comfort to allocate monies to these types of companies. For Chinese equities with a preference for new economy, names such as Tencent and Alibaba are at the forefront of changing global e-commerce trends and are attracting large amounts of offshore investment.

Conclusions

A selection of forward thinking New Zealand companies are well placed to benefit from this rapidly changing world. However, for investors looking to make the most of these sorts of opportunities, they are likely going to have to look both locally and further afield.

As businesses continue to evolve and change, so should our views on where to invest and why.

Views expressed in this article are those of Hobson Wealth Partners Limited, an NZX Firm and do not constitute advice. The disclosure statement for Hobson Wealth is available free of charge by contacting us on 0800 742 737. This article does not consider the objectives or situation of any particular investor. It should not be construed as a recommendation or solicitation to buy or sell any security or product, or to engage in or refrain from engaging in any transaction. We recommend that you consider the appropriateness of the information in this article to your situation and obtain financial, legal and taxation advice before making any financial decision.

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