Investment Institute

The Digital Economy: Reasons for optimism in 2022

  • 24 January 2022 (5 min read)

The Digital Economy describes the vast universe of companies operating across all touchpoints of connected consumers’ online journey. It is much more than individual retailers’ digital stores, as we see the rapid growth of new selling points across social media, apps, search engines and web portals, all battling to monetize rising web traffic.

This theme – which at AXA IM we call ‘the Connected Consumer’ - has huge growth potential supported by two powerful drivers: firstly, technology, as we are all increasingly connected and better-informed consumers; and secondly, demographics, as ‘digital natives’, or millennials, reach their peak spending years, their disposable income increases and more of this is likely to be spent via digital channels. We are really only at the beginning of the long-term, secular trend and it is a truly a global, multi-decade theme. However, there are also more immediate reasons for optimism as we start a new year.

Looking  at the beginning of 2022, in many ways it feels very similar to last year at the same time, as we still face uncertainties around COVID-19. However, this time the spectre of inflation is more present even if it remains to be seen if this is transitory or something more structural.  What is probably more certain at this point is pending interest rate rises. Despite those near-term headwinds, we believe that many companies in the Digital Economy will continue to flourish over the coming years and, if anything, they look typically more attractive on a relative valuation basis versus this time last year.

Reasons for optimism in 2022: 

E-commerce penetration is poised to accelerate

Even though we feel we have always lived in a digital manner, we really started our digital journey with the multipilcations of apps over the last few years. Whilst many aspects of our digital life accelerated as the result of the COVID-19 disruption, global e-commerce penetration remains at a low level. We believe the online penetration trajectory should grow steadily, supported by irreversible catalysts such as technological progress and demographic shifts.

“Gen Z” purchasing power

The use of digital is broadly accepted for the older generation and has become mainstream for the younger generation. ‘Gen Z’ – born between 1997 and 2012 – are a digital-native generation who grew up with digital and are far more comfortable to navigate within the online consumer journey (when Steve Jobs introduced the very first iPhone in 2007, the oldest Gen-Z members were not more than 10 years old!).  They are eager to engage in social commerce and can effortlessly access a large variety of sources for product information. More importantly, this digital-native generation is now reaching adulthood and embraces an increasing ‘digital’ purchasing power as they come of age.

Digital payment still in its infancy

More people are using digital payments than prior to the crisis, shifting their preferences towards a cashless society. Last year was turbulent for digital payment solution providers, dragged down by uncertainty surrounded by the coronavirus situation,the timing of a recovery in cross-border and e-wallet payment volumes was generally lower. However, we think the secular growth tailwinds from these companies are unchanged and we see their prospects remaining highly attractive. We also see a lot of innovations in this space – such as ‘buy now/pay later’ – that newest generations should take advantage of, accelerating further the pace to digital payment solutions.

The delivery rush

Although the online consumer can be very rewarding for attractive and innovative businesses/platforms, he is somewhat demanding in his delivery expectations: “I want my order as fast as possible!” Whilst e-commerce colossus embrace ‘immediacy’ with ease, it becomes much more challenging for smaller businesses to offer those new standards. To alleviate those frictions, they tend to partner with the best logistic and warehouse experts proposing automated solutions for rapid delivery. The overall tone from those businesses related to the delivery area was encouraging last year, with most of them highlighting a strong level of activity and confidence in consumer demand for the coming year.

Towards normalisation

Whilst 2020 was disruptive in many ways, with many people adapting to new living standards, 2021 was devoted to more normalisation. We believe that once a consumer’s experience has been beneficial, or once a technology service has proved positive for a company’s business, there is no reason that it should stop (have we stopped using videoconference services even when government restrictions lifted?). We see recent changes in our global behaviours to remain sticky and we think that there is still a lot of business to be done as companies adopt new ways to support their employees and customers even after the full effects of the virus have waned.

Thematic Equities

What is the Evolving Economy?

The evolving economy is all about identifying companies that are tapping into multi-decade demographic and technological changes, regardless of their region or sector classifications.

Find out more

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    This document is for informational purposes only and does not constitute investment research or financial analysis relating to transactions in financial instruments as per MIF Directive (2014/65/EU), nor does it constitute on the part of AXA Investment Managers or its affiliated companies an offer to buy or sell any investments, products or services, and should not be considered as solicitation or investment, legal or tax advice, a recommendation for an investment strategy or a personalized recommendation to buy or sell securities.

    Due to its simplification, this document is partial and opinions, estimates and forecasts herein are subjective and subject to change without notice. There is no guarantee forecasts made will come to pass. Data, figures, declarations, analysis, predictions and other information in this document is provided based on our state of knowledge at the time of creation of this document. Whilst every care is taken, no representation or warranty (including liability towards third parties), express or implied, is made as to the accuracy, reliability or completeness of the information contained herein. Reliance upon information in this material is at the sole discretion of the recipient. This material does not contain sufficient information to support an investment decision.

    All investment involves risk, including the loss of capital. The value of investments .and the income from them can fluctuate and investors may not get back the amount originally invested.

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