Horizons newsletter – week 28 // 2018

Horizons is a bi-monthly Dasym Research initiative to show you how the Dasym themes have been in the news. We publish the Horizons on our website and as an email newsletter. If you wish to receive the email, please contact Investor Relations.
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Mexico turns a page
The leftwing Andres Manuel Lopez Obrador (short “AMLO”) swept to power in recent Mexican elections with 53% of the vote, more than twice as much as the runner-up. Corruption scandals in the ruling PRI, Trump’s confrontational policy and persistent social problems like violence and inequality have led to a strong anti-establishment sentiment. AMLO has vowed to initiative public work programs that will provide work for 2.3 million young Mexicans, extend university grants for students, boost rural income and double the pensions of the elderly. His claim that he will fund these with his anti-corruption drive and through austerity on public officials is dubious. Markets will be vigilant about business-unfriendly policies. In foreign affairs, the new president could shift the country away from its decade-long alliance with the U.S. and more towards Latin America and other powers like the E.U. and China. Mexico has a peculiar political system: Presidents can only serve a single six year term, but during this term they have more power than their equivalents abroad. AMLO’s election thus truly means a break with Mexico’s history.

New internet hubs
In the nascent Internet of Things, a growing number of objects will interconnect and communicate with each other, increasingly without human mediation. For example, surveillance cameras can autonomously share and transfer data with streetlights, while our smart fridge automatically orders groceries online. And as the IoT evolves, more mobile devices will become connected, such as cars, drones or robots. To enable such an emerging ecosystem of mobile and autonomous devices, 5G network technology will be crucial since this allows for more specialized, flexible and ubiquitous networks. Traditional infrastructure will find a new role by becoming local hubs for this new network infrastructure: bus shelters for instance can function as ‘small cells’ to beam network towards both passengers and the connected busses they are waiting for. Even better, the network itself can become mobile: autonomous vehicles can be converted into mesh networks, and these driving internet hubs enable a vast array of new services and capabilities across smart cities. As both users and connected devices become ever more mobile and autonomous, our network infrastructure must become less stationary as well.

Digital deflation
Inflation has remained persistently low in most advanced economies in recent years. Beside financial-cyclical drivers (e.g. slower productivity growth, lower consumption), digital technology is keeping down price growth. First, the increased penetration of the internet and ICT have created a global marketplace for most goods and services, like books on Amazon or smartphones from China. This reduces companies’ ability to leverage their (local) market power into a price markup. Furthermore, digital technologies allow consumers to leverage their own production factors, for example in the gig economy (e.g. leisure time and labor) and sharing economy (e.g. your car or house), structurally depressing aggregate demand while increasing aggregate supply in markets. In addition, the generated data can be used to further tailor supply to demand, hence improving ‘price discrimination’ strategies that lower prices on the macro-level. Finally, digital technologies have enabled digital business models that can scale up production at almost no cost, like streaming music and videos, and MOOCs. With the emergence of 5G, IoT and AI, more industries might become disrupted by ´zero marginal cost economies´.