An Investing Megatrend: How Rapid Urbanization is Shaping the Future
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Investing Megatrend: How Rapid Urbanization is Shaping the Future

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An Investing Megatrend: How Rapid Urbanization is Shaping the Future

How Rapid Urbanization is Shaping the Future

The world is constantly changing, and many of these shifts have the potential to alter the investment landscape.

While some of these changes can be temporary and fleeting, others can be powerful, transformative “megatrends” that shape how society is organized at a fundamental level.

One such megatrend that has been in place for decades is the rapid rate of population growth in urban areas — and while it’s been highly influential thus far, we’ve likely only seen the beginning of its formative impact on the global economy.

An Intro to Rapid Urbanization

Today’s infographic comes to us from iShares by BlackRock, and it highlights the case for rapid urbanization as being one of the most important overarching trends to watch in markets over the long term.

It’s a trend that originated in developed economies in the 21st century, as people transitioned from agricultural work to factory and service jobs.

RegionUrban share of population (1900)Urban share of population (2016)
United States40%82%
Japan12%91%
Western Europe41%80%

In these developed economies today, cities are major sources of innovation and wealth creation, and the World Bank estimates that over 80% of global GDP is now generated in cities.

A Global Shift

Over the coming decades, the large-scale role of cities will become even more amplified as rapid urbanization spills over to the rest of the world.

Billions of people — especially in Asia and Africa — will be seeking opportunities in cities over the coming decades. Between 2018 and 2050, the global urban population will increase from 55% to 68%, adding another 2.5 billion people to cities around the world.

RankCountryUrban population growth (2018-2050)
#1India416 million people
#2China255 million people
#3Nigeria189 million people

Nearly 90% of this growth will be in Africa and Asia, with India alone adding 416 million new people to its cities — more than any other country in the world over this timeframe.

The Dawn of the Megacity

People are not only flocking to cities, they are flocking to megacities — urban conglomerations with more than 10 million people.

In just 40 years, the total amount of megacities will quadruple, gaining nearly 600 million residents in the process:

Year# of MegacitiesPopulation% of Urban Population
199010153 million7%
201023370 million12%
203041730 million14%

With billions of new people living in urban areas — and many of them living in megacities — we will have to rethink how our cities are designed and engineered.

And as this happens, the city as we know it will be revolutionized.

The Urban Opportunity

Rapid urbanization will create both opportunities and challenges for society, and a plethora of investment possibilities in the process.

As global cities become more integrated with technology, new business models will emerge as cities become smarter, denser, and more connected.

These potential opportunities include:

  • Smarter cities
    Cities will embrace technology to improve services and infrastructure, adding tech-driven features like smart lighting or real-time traffic updates.
  • New infrastructure
    Cities and companies will invest heavily to build next generation infrastructure, such as data centers, green energy, and citywide WiFi.
  • A focus on personal security
    With higher crime rates in cities than rural areas, governments will employ elevated levels of surveillance on citizens in cities. Increasing connectivity means that every activity is logged and monitored.
  • New services
    As cities become more connected, non-traditional players — such as cybersecurity experts or cleantech engineers — will be needed as a part of city planning processes.
  • No car ownership
    A lack of space and the rise of autonomous cars will mean fewer people will own a car, preferring to use ‘summon-able’ services instead.
  • New healthcare systems
    As population density grows to unprecedented levels, existing healthcare systems will need to be radically overhauled to deal with this influx.

Rapid urbanization will have a wide-ranging impact on global economics, demographics, and society as a whole.

As rapid urbanization and other megatrends collide and feed off each other, there’s no doubt that even more thematic investment opportunities will be created.

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Interest Rate Hikes vs. Inflation Rate, by Country

Inflation rates are reaching multi-decade highs in some countries. How aggressive have central banks been with interest rate hikes?

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Interest Rate Hikes vs. Inflation Rate, by Country

Imagine today’s high inflation like a car speeding down a hill. In order to slow it down, you need to hit the brakes. In this case, the “brakes” are interest rate hikes intended to slow spending. However, some central banks are hitting the brakes faster than others.

This graphic uses data from central banks and government websites to show how policy interest rates and inflation rates have changed since the start of the year. It was inspired by a chart created by Macrobond.

How Do Interest Rate Hikes Combat Inflation?

To understand how interest rates influence inflation, we need to understand how inflation works. Inflation is the result of too much money chasing too few goods. Over the last several months, this has occurred amid a surge in demand and supply chain disruptions worsened by Russia’s invasion of Ukraine.

In an effort to combat inflation, central banks will raise their policy rate. This is the rate they charge commercial banks for loans or pay commercial banks for deposits. Commercial banks pass on a portion of these higher rates to their customers, which reduces the purchasing power of businesses and consumers. For example, it becomes more expensive to borrow money for a house or car.

Ultimately, interest rate hikes act to slow spending and encourage saving. This motivates companies to increase prices at a slower rate, or lower prices, to stimulate demand.

Rising Interest Rates and Inflation

With inflation rates hitting multi-decade highs in some countries, many central banks have announced interest rate hikes. Below, we show how the inflation rate and policy interest rate have changed for select countries and regions since January 2022. The jurisdictions are ordered from highest to lowest current inflation rate.

JurisdictionJan 2022 InflationMay 2022 InflationJan 2022 Policy RateJun 2022 Policy Rate
UK5.50%9.10%0.25%1.25%
U.S.7.50%8.60%0.00%-0.25%1.50%-1.75%
Euro Area5.10%8.10%0.00%0.00%
Canada5.10%7.70%0.25%1.50%
Sweden3.90%7.20%0.00%0.25%
New Zealand5.90%6.90%0.75%2.00%
Norway3.20%5.70%0.50%1.25%
Australia3.50%5.10%0.10%0.85%
Switzerland1.60%2.90%-0.75%-0.25%
Japan0.50%2.50%-0.10%-0.10%

The Euro area has 3 policy rates; the data above represents the main refinancing operations rate. Inflation data is as of May 2022 except for New Zealand and Australia, where the latest quarterly data is as of March 2022.

The U.S. Federal Reserve has been the most aggressive with its interest rate hikes. It has raised its policy rate by 1.5% since January, with half of that increase occurring at the June 2022 meeting. Jerome Powell, the Federal Reserve chair, said the committee would like to “do a little more front-end loading” to bring policy rates to normal levels. The action comes as the U.S. faces its highest inflation rate in 40 years.

On the other hand, the European Union is experiencing inflation of 8.1% but has not yet raised its policy rate. The European Central Bank has, however, provided clear forward guidance. It intends to raise rates by 0.25% in July, by a possibly larger increment in September, and with gradual but sustained increases thereafter. Clear forward guidance is intended to help people make spending and investment decisions, and avoid surprises that could disrupt markets.

Pacing Interest Rate Hikes

Raising interest rates is a fine balancing act. If central banks raise rates too quickly, it’s like slamming the brakes on that car speeding downhill: the economy could come to a standstill. This occurred in the U.S. in the 1980’s when the Federal Reserve, led by Chair Paul Volcker, raised the policy rate to 20%. The economy went into a recession, though the aggressive monetary policy did eventually tame double digit inflation.

However, if rates are raised too slowly, inflation could gather enough momentum that it becomes difficult to stop. The longer high price increases linger, the more future inflation expectations build. This can result in people buying more in anticipation of prices rising further, perpetuating high demand.

“There’s always a risk of going too far or not going far enough, and it’s going to be a very difficult judgment to make.” — Jerome Powell, U.S. Federal Reserve Chair

It’s worth noting that while central banks can influence demand through policy rates, this is only one side of the equation. Inflation is also being caused by supply chain issues, a problem that is more or less outside of the control of central banks.

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3 Insights From the FED’s Latest Economic Snapshot

Stay up to date on the U.S. economy with this infographic summarizing the most recent Federal Reserve data released.

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us economic snapshot

3 Insights From the Latest U.S. Economic Data

Each month, the Federal Reserve Bank of New York publishes monthly economic snapshots.

To make this report accessible to a wider audience, we’ve identified the three most important takeaways from the report and compiled them into one infographic.

1. Growth figures in Q2 will make or break a recession

Generally speaking, a recession begins when an economy exhibits two consecutive quarters of negative GDP growth. Because U.S. GDP shrank by -1.5% in Q1 2022 (January to March), a lot rests on the Q2 figure (April to June) which should be released on July 28th.

Referencing strong business activity and continued growth in consumer spending, economists predict that U.S. GDP will grow by +2.1% in Q2. This would mark a decisive reversal from Q1, and put an end to recessionary fears for the time being.

Unfortunately, inflation is the top financial concern for Americans, and this is dampening consumer confidence. Shown below, the consumer confidence index reflects the public’s short-term outlook for income, business, and labor conditions.

consumer price index 2005 to 2022

Falling consumer confidence suggests that more people will delay big purchases such as cars, major appliances, and vacations.

2. The COVID-era housing boom could be over

Housing markets have been riding high since the beginning of the COVID-19 pandemic, but this run is likely coming to an end. Here’s a summary of what’s happened since 2020:

  • Lockdowns in early 2020 created lots of pent-up demand for homes
  • Greater household savings and record-low mortgage rates pushed demand even further
  • Supply chain disruptions greatly increased the cost of materials like lumber
  • Construction of new homes couldn’t keep up, and housing supply fell to historic lows

Today, home prices are at record highs and the cost of borrowing is rapidly rising. For evidence, look no further than the 30-year fixed mortgage rate, which has doubled to more than 6% since the beginning of 2022.

Given these developments, the drop in the number of home sales could be a sign that many Americans are being priced out of the market.

3. Don’t expect groceries to become any cheaper

Inflation has been a hot topic this year, especially with gas prices reaching $5 a gallon. But there’s one category of goods that’s perhaps even more alarming: food.

The following table includes food inflation over the past three years, as the percent change over the past 12 months.

DateCPI Food Component (%)
2018-02-011.4%
2019-05-012.0%
2019-06-011.9%
2019-07-011.8%
2019-08-011.7%
2019-09-011.8%
2019-10-012.1%
2019-11-012.0%
2019-12-011.8%
2020-01-011.8%
2020-02-011.8%
2020-03-011.9%
2020-04-013.5%
2020-05-014.0%
2020-06-014.5%
2020-07-014.1%
2020-08-014.1%
2020-09-014.0%
2020-10-013.9%
2020-11-013.7%
2020-12-013.9%
2021-01-013.8%
2021-02-013.6%
2021-03-013.5%
2021-04-012.4%
2021-05-012.1%
2021-06-012.4%
2021-07-013.4%
2021-08-013.7%
2021-09-014.6%
2021-10-015.3%
2021-11-016.1%
2021-12-016.3%
2022-01-017.0%
2022-02-017.9%
2022-03-018.8%
2022-04-019.4%
2022-05-0110.1%

From this data, we can see that food inflation really picked up speed in April 2020, jumping to +3.5% from +1.9% in the previous month. This was due to supply chain disruptions and a sudden rebound in global demand.

Fast forward to today, and food inflation is running rampant at 10.1%. A contributing factor is the impending fertilizer shortage, which stems from the Ukraine war. As it turns out, Russia is not only a massive exporter of oil, but wheat and fertilizer as well.

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