Morgan Stanley Lists The Four Investment Debates It Will Focus On In 2022

By Michelle Weaver, equity strategist at Morgan Stanley

A core element of the research process is asking the right question at the right time.

Each year Simon Bound, our Global Director of Research, hosts senior analysts from around the world to discuss the most important questions facing their industries and the debates that will shape returns in the years ahead. Looking back on our gathering this past week, here are four investment debates our teams will be particularly focused on in 2022.

1. How can technology disrupt health care on both the consumer and business side? 

The patient services experience is complex, convoluted, and fragmented – an area ripe for disruption. Some tech companies have tried to consumerize health care (for example, Apple with the Apple Watch). However, most big tech companies haven’t ventured into the more regulated and specialized areas. Which consumer-facing segments will be easiest for tech companies to enter?

Technology innovations also have the potential to transform diagnosis and drug development. Can artificial intelligence improve the selection of participants in drug trials and help get drugs to market more quickly? Who will be the key tech players disrupting health care? Big tech has the money to invest but is also under pressure to deliver growth to shareholders. Will smaller players be the ones driving transformative change or will the government implement policies to spur innovation in this field? For investors, it is also important to focus on areas where companies can make big strides over the next decade versus moonshot ideas.

2. Will technology drive a wave of sustained productivity growth? 

Covid lockdowns induced rapid and fairly widespread adoption of labor-saving technology. However, we have yet to see if the productivity gains that resulted are a one-time shift higher in productivity, or a permanent gain to productivity growth. The technology diffusion is widespread and can be seen in retailers, banks, health care, industrial companies, and others. Companies are already seeing SG&A efficiency improvements and have proof of the benefits of their investment in and adoption of technology. How will new technologies like artificial intelligence, machine learning, and the internet of things change the outlook for aggregate productivity growth over the coming decade?

3. Is it harder to build a mega brand today, and does direct-to-consumer (DTC) actually work? 

Technology is fragmenting audiences, which makes brand-building harder but the prize bigger. In response, companies have ramped up ad spending, which is growing rapidly as a percentage of GDP. Brand-building is less challenging in some markets than others. Sportswear and footwear are two areas where new players have an easier time gaining a foothold. It’s much harder to build a brand in the luxury world, since heritage and provenance loom as two very high barriers to entry. We’ve seen a global transition across verticals into DTC selling. Acquiring customers is very expensive, but brands have to share less of their profits with multi-brand retailers. Still, is there a ceiling above which you can’t grow your brand digitally any further? If brand-building is becoming tougher, should investors pay up for big brands?

4. How do low interest rates impact cryptocurrency? 

High capital availability is having two substantial impacts on cryptocurrency – it is allowing new entrants to the cryptocurrency world (and FinTech generally) to operate for extended periods of time without reaching profitability and it is pulling labor and skills out of the incumbents. Bitcoin came from the aftermath of the global financial crisis and was a response to the Fed’s quantitative easing policies and poor sentiment around traditional banking. Some retail customers are choosing cryptocurrency as they want to transact in a decentralized system without banks. However, if capital no longer remains cheap, can preferences for cryptocurrency-based transactions persist if they remain higher cost, higher risk, and less convenient than existing payment systems? With ~$3 trillion of value now assigned to cryptocurrency globally, this question looms large.

Enjoy your Sunday.