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Europe’s technological future

January 2019

Europe’s tech companies are often out of the spotlight, but J.P. Morgan Private Bank believes the region’s rich heritage of innovation provides unique opportunities to investors

January 16, 2019 – 11:05 – Dubai –Whilst Europe is home to many world-leading companies in their respective fields, technology companies on the continent are currently out of the spotlight, with FANGs of Facebook, Amazon, Netflix and Google dominating this space. However, Europe is home to many world-leading companies hosting seven of the world’s 11 industrial software companies and gathering 50% of global industrial software revenue. In light of this, J.P. Morgan Private Bank believes Europe offers plenty of investment opportunities, particularly in areas that combine technology with other industries. In its recent edition of Perspective from Europe, the Private Bank identifies two themes that are set to drive innovation in tech across Europe: Industry 4.0 and the new generation of automobiles.

“Many investors are underexposed to European tech companies because this sector is under-represented in both global and domestic equity indices, particularly those comprising larger capitalisation companies. Yet when we expand the universe across sectors and seek companies that are using technology to drive growth, we find plenty of opportunities in Europe,” explains David Stubbs, Head of Client Investment Strategy for EMEA, J.P. Morgan Private Bank. “Indeed, technology, and specifically digital technology, is so intertwined with many businesses, as well as our social and economic lives, that trying to separate ‘tech’ from ‘non-tech’ is becoming increasingly redundant. We’ve identified two areas of interest where technology and industry come together through the concept of ‘Industry 4.0’ and the transition towards the next generation of automobiles.”

Industry 4.0

Industry 4.0 – part of the Internet of Things (IoT) that focuses on manufacturing – is expected to grow at an impressive average annual growth rate of 22% to reach a value of €287 billion in 2020. Europe accounts for more than a third of global Industry 4.0 investments, with Western and northern countries being its main markets, especially Germany. European initiatives at a national and regional level are facilitating Industry 4.0 developments and lowering barriers to entry.

“Many of these new Industry 4.0 technologies are rapidly becoming industry standards in a similar way to cloud computing. There are several catalysts powering this growth: new technologies to SMEs; European standards; policies for developing new technologies; and industry upgrades for demographic changes,” Stubbs added.

“Although progress has already been impressive, Europe’s adoption of these technologies is about to accelerate. The CBI identifies several countries at the leading edge of Industry 4.0, including Germany, Ireland, Sweden and Austria. This leaves the bulk of the European economy as a source of growth for technology investors and service providers. This trend is likely to be encouraged by the impending labour shortages in most European countries, seen most acutely in the Czech Republic, Hungary, Slovakia, Slovenia and Lithuania.”

The next generation of automobiles

Europe has been at the forefront of the automobile industry for decades, but the world is now moving rapidly towards a revolution in transport. Our streets, factories and showrooms will be transformed by simultaneous innovations of ride-sharing, autonomous driving and electrification. The Private Bank believes Europe is well-positioned to capitalise on this trend.

“The internal combustion engine is beginning a global structural decline and is expected to be largely replaced by electric vehicles over the next two decades with leading European automobile manufacturers already investing in their businesses as they work to electrify their fleets.  With electric battery costs falling rapidly, governments introducing regulations to reduce emissions, and EV batteries improving, data shows global demand is expected to increase at a 23% compound annual growth rate (CAGR) from 2020 to 2025.”

Stubbs concluded: “Europe is a leading player in technology and technology-enabled industries, with Industry 4.0 and EVs just two of the exciting themes set to drive innovation. Falling costs, government regulations and demographic changes are combining to accelerate the adoption of these technologies by both businesses and consumers.”

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