Quarterly Market Outlook
Netflix. Grab. Lazada. Work-from-home (WFH). Video conference. These names and phrases have become second nature to us, more so over the past year. They are also part of a new wave of digitalisation that is changing the global economy.
The digital economy is the new economy, sustaining global productivity growth, development and prosperity. According to the World Economic Forum, an estimated 70% of new value created in the economy over the next decade will be based on digitally enabled platforms. The world is changing before our eyes, and with that change comes growth and investment opportunities.
This development didn’t just materialise recently as a new idea, but rather, it was the next logical stage in the evolution of the economy. The evolution from conventional to digital is rapidly changing the way we do things - how businesses are structured, how consumers obtain services, information and goods and how governments need to adapt to new regulatory challenges. It also changes how we invest.
What’s a digital economy, exactly? The term was coined by a Japanese professor and research economist (with amazing foresight) during Japan’s recession in the 1990s.
The digital economy is an economy based on digital computing technologies, where business is conducted through markets based on the internet, mobile technology and the internet of things (IoT). It is underpinned by the increasing use of information and communication technologies across all business sectors to generate productivity, grow wealth and enhance our wellbeing.
Malaysia is part of the global digital economy. By the end of this decade, Malaysia will become a high-value-added economy and a net exporter of home-grown technologies and digital solutions, according to the road map set out in the Malaysia Digital Economy Blueprint. The Malaysia Digital Economy Blueprint’s vision is to be a regional leader in the digital economy and achieve inclusive, responsible and sustainable socioeconomic development.
The digital economy, which has been growing by leaps and bounds in recent months, is expected to make up 22.6% Malaysia’s gross domestic product (GDP) and create 500,000 jobs by 2025. To achieve this, RM21 billion will be invested through the National Digital Network (JENDELA) plan over the next five years. The plan was formulated to provide wider coverage and better quality of broadband experience for the Rakyat in preparation for 5G technology.
We’re currently in the first phase of JENDELA (2020 – 2022), which will see the retirement of 3G telecommunications technology. Under the second phase, 5G will be deployed in full in line with the 12th Malaysia Plan, providing a digital boost to the economy.
We’ve been forced to work remotely over the past year, and it’s likely that many of us will continue to do so long after Covid-19 becomes a distant memory. Most office-based work can be carried out from anywhere.
Malaysia ranks slightly above the global average in the percentage of people working from home, according to a 28-country survey conducted by Ipsos.1 As at December 2020, 65% of polled Malaysians said they worked from home, compared to the global average of 50%. This figure is largely due to the movement restrictions, but is likely to remain roughly the same as Malaysians - especially the younger generation entering the workforce – who place more emphasis on work-life balance and flexibility. This is same for businesses too, as they adopt a more asset-light approach to reduce overhead costs. With WFH arrangements, a large physical office becomes optional and transport costs and paid medical leave, which are often subsidised, are reduced as well. Employees no longer need to spend hours each day on the commute, reducing work-related stress.
The developments in the digital realm and concurrent drop in the cost of internet access have opened up the floodgates for money-making opportunities. Social media influencers are raking in millions, while freelance graphic designers can be hired from anywhere in the world, all from the comfort of their homes.
The digital economy will be driven, in part, by the increasing number of these ‘gig’ workers. Non-standard or gig work consists of income-earning activities outside of standard, long-term employer-employee relationships. These can be part or full-time, temporary or project-based, and can be paid by the hour, with a monthly wage, or by project.
Gig work is highly dependent on digital technology. Employees are not tied to one company or occupation; the incomes they get commensurate with the number of jobs they take on. They are free to work at any time as long as the deadlines are adhered to. With platforms like PayPal, they can accept payments from anywhere in the world.
Besides the newer gig jobs such as e-hailing drivers, parcel and food delivery, Airbnb hosts and influencers, there are more traditional gig jobs that have become more prominent. Writers, accountants, sound engineers and programmers can now offer their services through freelancer platforms.
As of October 2020, 26% of the Malaysian labour force, or about 4 million people, are gig workers and the number is growing.2 Platforms like Grab and Gigworks provide a viable solution for Malaysians to start gig work almost immediately. Statistics show that the gig economy tends to attract more young adults: 25-34 years (46.2%) and 35-44 (32.5%). Based on a report by a talent outsourcing and consultancy group KellyOCG, 84% of hiring managers in Asia Pacific outsource to freelancers as a means to save cost, stimulate innovation and keep a competitive advantage.
Individual income tax exemption of up to RM5,000 to employees who receive a handphone, notebook and tablet from their employer (effective 1st July 2020). Special individual income tax relief of up to RM2,500 on the purchase of handphone, notebook & tablet (effective 1st June 2020).
With the increasing number of Malaysians working from home, SOCSO will also provide coverage for workers involved in accidents while working at home under the Employment Injury Scheme.
Along with Penjana, the launch of RM100 million Ministry of Higher Education’s Penjana Career Advancement Programme (KPT-CAP) is rather timely, giving fresh graduates the option, and knowledge, to start their careers in gig work.
As investors, we look for potential growth. To give an idea of the massive growth of businesses that have become synonymous with the digital economy, we’ll go back to the beginnings of Netflix.
The company started out in 1998 as an online DVD rental business, and in 2007 introduced the gamechanger: streaming. By 2010, it was available through PS3, Xbox360, or an Apple device. As a reflection of just how much Netflix has changed the way we watch TV, the company won the Emmy Engineering Award in 2012, awarded to individuals or organisations that made a profound impact on the industry. In terms of subscribers, in Q3 2011 the platform had 21.5 million users. In Q3 2020, in the midst of the pandemic that turned us into binge-watching couch potatoes, that figure ballooned to 203.66 million.3
While you might feel it’s a little late to get on the Netflix bandwagon, there are many more such opportunities. If you’re looking for an opportunity to get in at the start, Grab Holdings, a major proponent of the gig economy, is expected to go public on the NYSE this year.
The expected growth of the digital economy and the related developments results in the increase in demand for ICT services and products. Technology has outpaced the broader equity market in recent years.
Investment growth for tech sector weight in MSCI ACWI
FAANG growth over a five-year period
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As we can see in the chart, FAANG stocks have appreciated 205% over a five-year period, with a sharp growth of 137% since the start of the global lockdown in March 2020.
While you could invest in individual stocks or companies, that comes with its own risks and challenges. There is a selection of funds that will let you get a foot in the door and take some of the risk off your shoulders. These funds offer you access to the key elements that make up the backbone of the digital economy: artificial intelligence (AI), cloud computing, electric vehicles, the IoT, 5G communications and technology services. RHB offers a wide range of funds to choose from, no matter what your investment goals are.
RHB i-Global Sustainable Disruptors Fund is a Shariah-compliant fund based on a bottom-up approach, focusing on innovation from a diverse number of securities within the Dow Jones Islamic Markets World Index. It gives investors the chance to capitalise on the key beneficiaries of long-term structural growth themes like digitalisation, the financial evolution, feeling good, healthcare innovation, and the energy revolution. Its approach is flexible, unconstrained by any particular style, sector or region, and includes investments in emerging markets.
The Affin Hwang World Series – Next Generation Technology Fund capital appreciation in global equities over a medium to long-term horizon, investing in life-changing disruptive tech, including artificial intelligence, 5G, cloud computing, electric vehicles. A broader focus beyond the established mega names provides exposure to high growth companies that are behind the world’s latest technological developments.
The millennials (1980 – 1996) and Gen-Y (1997 – 2000s) make up the largest demographic, and the Principal Global Millennial Equity Fund aims to capitalise on their habits and lifestyle choices. This segment is currently changing how businesses interact with their customers and disrupting the global economic landscape by seizing new platforms to construct personalised networks of friends, colleagues and affinity groups.
With all these choices available, your Relationship Manager can help you create a portfolio tailored to suit your goals. Discuss your options with your Relationship Manager. If you aren’t currently an RHB customer, we’d love to have you on board. Provide us with your contact details and we’ll get in touch, or just drop by any of our branches.
Sources : 1IPSOS Press release: Pandemic’s Impact on Malaysian Workforce, 20 Jan 2021. 2The Sun Daily, Rise of gig economy, Sofea Azahar, 8 Oct 2020. 3Business of Apps, Netflix Revenue and Usage Statistics (2021), Mansoor Iqbal, 9 March 2021.
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