KNOWLEDGE EXCHANGE ANNUAL INVESTMENT EDUCATION WORKSHOP

2019 2019 EFGAM KNOWLEDGE EXCHANGE

Our eighth annual EFGAM Knowledge Exchange took place at the Mayfair Hotel in London on 9-10 January 2019. Technological change and artificial intelligence were two of the important -term themes which were discussed alongside the outlook for economies and financial markets. Political developments – from Brexit to Italy and Trump – were a key theme, as were China-US trade tensions and the direction of US Fed policy. Jason Jay from our Future Leaders panel looked at the issues involved in implementing a sustainable investment strategy.

We hope you enjoy this synopsis of the presentations.

Moz Afzal Daniel Murray Global Chief Investment Officer Deputy CIO and Global Head of Research

Note: To the extent that this document contains non-independent research, this document should be considered a marketing communication. Such research has not been prepared in accordance with legal requirements designed to promote the independence of investment research and it is not subject to any prohibition on dealing ahead of the dissemination of investment research.

2 | Knowledge Exchange January 2019 NUMEN CAPITAL: INVESTMENT OUTLOOK FOR 2019

Filippo Lanza Numen Capital

Filippo Lanza discussed three key aspects of Numen Capital’s The tech winter investment outlook for 2019 and beyond: the ‘debt wall’; the Numen see a ‘tech winter’ coming for almost all industrial coming ‘tech winter’; and merger wars. sectors and banks and insurers alike. That has several key aspects. Cash use is declining: in China, a leader in this trend, The debt wall more than 90% of payments are non-cash. New payments Global debt levels are at historic highs. Debt has been systems are becoming widely adopted. Many banks have too accumulated by governments, banks and corporates but the many employees and legacy IT systems at the same time as nature of this debt has changed. new payments technology is becoming widely adopted by start-up companies with much lower overheads. There are In the eurozone, we now have collective action clauses (CACs) many new entrants to the financial markets putting pressure in many government bonds, which allow a majority of bond on traditional payment, insurance and stockbroking models. holders to trigger a restructuring (these provisions were first Cloud-based software and data analytics are providing a new introduced, retrospectively, for Greek government debt during channel for the assessment of risk and the pricing of insurance. its crisis). The European Stability Mechanism, the bailout fund established in the crisis, has become the “de facto” Merger wars ultimate ruler on European debt restructurings while the ECB In this environment, several big tech companies themselves has emerged as the largest holder of sovereign debt. And are vulnerable: some may well pay too high a price for the concept of a particular class of holders of government mergers and acquisitions; and in some areas, such as media, debt being given preferential treatment in the event of there are many large companies with very similar offerings a restructuring is now a consideration: in the Greek debt competing. Often acquisitions are financed by increased debt restructuring there was no to the value of bonds held issuance, increasing the vulnerabilities of such companies. by national central banks and the ECB. These changes have led to a major loss of sovereignty for eurozone governments. Conclusions For , this means that analysis of government balance In credit markets, Numen see opportunities on the side sheets becomes important, analogous to assessing corporate in sectors where spreads are still compressed and the balance sheets when looking at companies’ debt. Filippo macroeconomic situation is deteriorating. In several areas, expressed a concern about the vulnerability of most sovereign equity offers much better value than debt. In some areas, an debt, especially Italian debt, in an environment of potentially over-reaction to bad news is opening excellent entry points in tougher fiscal rules, the end to ECB asset purchases and these stressed and distressed long opportunities. structural changes in government debt markets.

For banks, we now have more punitive restructuring and liquidation rules for certain types of their debt, notably Additional Tier 1 (AT1) debt, meaning it is important for investors to assess the entire capital structure. Debt investors can, in extreme cases, see their entire holdings being wiped out overnight (as was the case, for example, with Spanish bank Banco Popular’s restructuring). This change of regime has unfortunately not been complemented by a completion of the banking union with appropriate deposit guarantees schemes.

For many companies, leverage ratios have risen sharply and debt maturities have lengthened at the same time as the life cycle of companies has been shortened by extremely competitive markets. Far fewer companies have a competitive ‘moat’ protecting their businesses. Corporate debt is increasingly covenant-lite and has lower coupons and longer maturity than in the past. All these developments make for a more challenging environment in assessing corporate debt.

Knowledge Exchange January 2019 | 3 GLOBAL AND ASIAN INVESTMENT STRATEGY

Chris Wood CLSA

An end to Fed tightening although longer-term the Sino-American relationship will Chris started by commenting that he still thinks that there remain stressed by Washington’s renewed obsession with may be one more increase in the Fed Funds rate to come. ‘strategic rivalry’. This will result in an unhelpful intermingling However, with the American market hit in Q418 and US of trade and national security issues. credit spreads rising, the prospects are growing for an end to Fed tightening. Still monetary policy discussion in 2019 will be US tax reform much more about US Fed balance sheet contraction than US tax reform has been hugely significant. US after-tax about interest rates, in Chris’s view. The fact that US 10-year corporate profits, the broadest macro measure of corporate Treasury yields have not broken above the downtrend which profitability, rose by 19.6% year-on-year to a record annualised has been in place since the early 1980s (see Figure 1) is good US$2.08tn in 2018 Q3. US taxes paid by the corporate sector news for asset markets generally. As the 10-year yield follows fell by more than a third in the first three quarters of 2018. US nominal GDP growth, and that is set to weaken, a break out There has been a big repatriation of US companies’ foreign in 10-year yields will be avoided. Some see the Fed’s balance earnings, which has helped share buybacks by S&P 500 sheet contraction as bearish for bonds, but Chris disagrees: companies to reach a new record high of US$720bn (in the 12 that balance sheet contraction is deflationary because it months to end-September). amounts to monetary tightening, and so should keep bond yields low. Higher rates impacting the economy However, there are now signs that higher interest rates are 1. US 10-year Treasury bond yield: long-run downtrend intact starting to impact the economy. For non-financial companies, debt levels have risen, especially for companies in the 16 BBB-rated sector. Household debt, in contrast, has been reduced relative to income. Some claim this will mean that the 8 millennial generation will start to buy houses. However, the income distribution has become more unequal and US e 4 personal interest payments (excluding mortgage payments) reached a record annualised US$348bn in November and are

%, log scal up 55% since mid-2013. In that sense, household debt remains 2 an issue.

1 Average hourly earnings are picking up, but Chris does not see 1980 1985 1990 1995 2000 2005 2010 2015 2020 this bringing much higher consumer price inflation – more US 10-year Treasury yield likely it will reduce corporate profits because of pressure on Source: FRED (Federal Reserve Economic Data) and CLSA. Data as at 9 January 2019. record high margins. Core CPI inflation is now peaking. With US M2 growth and bank lending clearly slowing, inflationary However, the US BBB-rated corporate bond spread over pressures look set to remain weak. government bonds rose to almost 200 basis points at the start of January 2019. The price of leveraged loans also fell in ECB 2018 Q4 and Chris thinks there is the potential for redemption The ECB’s narrative will remain one of normalisation, although risk in that market. As a large proportion (70-80%) of Chris sees further longer-term refinancing operations (LTROs) leveraged loans are covenant lite, this is an area where he being introduced to help the Italian banks. European banks sees problems may emerge. have weakened recently along a recognition that there will be no push for further fiscal and monetary integration in the For now, the US Fed’s quantitative tightening programme eurozone. remains on auto pilot, according to Fed Chairman Powell and the Fed would like to continue to normalise policy if the data Chris sees Italy as “openly opposed to the Maastricht Treaty” allow this. although the politics may take some time to play out. Matteo Salvini is by far the most popular politician and Chris sees him Trade deal calling another election after the European parliament Chris thinks a deal on trade will be agreed between America elections in May, with the view to strengthening his and China within the 90-day “time out” agreed at the start of and putting more pressure on Brussels. Chris thinks any December. This will trigger an equity market rally led by Asia, renewed complacency in the financial markets about Italy

cont.

4 | Knowledge Exchange January 2019 GLOBAL AND ASIAN INVESTMENT STRATEGY

(cont.) should be used to short the Italian sovereign bond market. growth received a boost from membership of the WTO from Italy has fundamental problems: there has been no growth in 2001 onwards, so if President Trump’s policies mean we see GDP per capita since 1999; Italy’s Target-2 liabilities have the end of globalisation then this is a concern for China. continued to increase (to €492bn at the end of November). The latter is pan-eurozone book-entry issue at the moment but Chris thinks that China and the US will, however, come to a would become a real problem if Italy looked set to leave the deal, with China making concessions in the areas of euro. intellectual property protection and market access. Chris is hopeful that the tariffs already imposed will be removed. Emerging markets Trump has “never thought of China as a strategic threat”. The prospects for emerging markets depend a great deal on Rather, he thinks they are smart and he wants to make a the US dollar: there is a 92% correlation between the US dollar better deal with them. One thing that Trump incorrectly thinks index and the MSCI Emerging Markets Index.1 In bond markets, is that the fall in the Shanghai was because of the JP Morgan EMBI+ emerging market sovereign bond yield trade tensions with the US: it was not. It was “all about China has risen by 125bp since the beginning of 2018 to 6.99%. This is deleveraging and the shadow banking system.” The pressures an opportunity to add to emerging market sovereign exposure. from deleveraging have probably peaked out but it is “equally There are risks in the corporate sector, however, where the true that China does not want to do a big stimulus”. Pressures debt build-up has been large. from capital outflow remain but foreign investors are now buying more Chinese bonds, which provides an offset. One Emerging and Asia (ex-Japan) equity markets are still at almost upcoming issue is the amount of maturing debt issued by a one third valuation discount to the US,2 but that discount is Local Government Financing Vehicles (LGFVs).6 This was issued likely to remain, in Chris’s view, unless there is a problem in US mainly to finance the infrastructure spending boom after the corporate credit. This will force stock market investors in the global financial crisis. A government restructuring of that debt US finally to focus on the negative consequences of financial would be welcomed by the markets. engineering. India and Indonesia Japan Modi’s reforms are proving effective in India. Notably, the There are “very few people who have to own Japanese bankruptcy process is now working. Earnings of the Indian equities” because of the lack of dedicated Japan funding ‘nifty’ are expected to grow strongly in the fiscal year to globally; domestic institutions have not raised allocations to March 2020. The Reserve Bank of India has erred on the tight domestic equities. The Japanese yen is cheap on the basis of side in its monetary policy and Chris sees room for it to ease its real effective exchange rate and the 10-year Japanese under new leadership. The Indian private banks are one of (JGB) yield has turned marginally negative. Chris’s favoured sectors to own in Asia. The main reason is that the Bank of Japan continues to be a major buyer, now holding 46% of all outstanding JGBs. Indonesia could be one of the greatest beneficiaries of a softer Fed policy. The rupiah depreciated against the US dollar The Japanese labour market remains tight and that is now for much of 2018 but has recently regained strength. Interest reflected in higher wages3 but consumer price inflation rates have the scope to fall significantly, especially as inflation remains low and the Bank of Japan’s 2% inflation target is has come under control. unrealistic. Although there is a general concern about the impact of the yen on Japanese corporate profits, Chris thinks Conclusions and portfolio preferences this is exaggerated: non-manufacturing corporations, more The growing potential for a U-turn in Fed policy in response to orientated to the domestic economy, now account for 63% of negative action is a reminder that gold total corporate profits.4 remains an essential insurance for investors. Slower China credit growth is an indication of a weaker outlook for growth China but there could be a boost if a trade deal with the US is China’s nominal GDP per capita has risen 39-fold in US dollar agreed. Indian banks remain one of Chris’s favoured areas and terms since Deng Xiaoping embraced market reforms 40 years Indonesia could provide the best opportunities in the event of ago: from US$229 in 1978 to US$8,830 in 2017. By contrast, US a change in Fed policy direction. GDP per capita has risen “only” six-fold since 1978.5 China’s

1 Source: Bloomberg. Correlation from October 2016 to date. Data as at 4 January 2019. 2 The MSCI AC Asia ex-Japan and the MSCI Emerging Markets are now trading at 10.9x and 10.4x 12-month forward earnings, or 27% and 31% discount to the MSCI USA on a forward PE basis. Source: Datastream, I/B/E/S, CLSA as at 4 January 2019. 3 The nominal compensation of employees rose by 2.7%year-on-year in 2018 Q3. Source: Japan Cabinet Office. 4 Note: Japanese non-financial corporates with capital over Y10m. Source: Ministry of Finance - Financial Statements Statistics of Japanese Corporations 5 Sources: National Bureau of Statistics, CEIC Data, US Bureau of Economic Analysis. 6 A total of RMB1.6tn worth of local government financing vehicle (LGFV) bonds will mature this year, following by RMB1.3tn in 2020 and Rmb1.8tn in 2021. Source: Wind

Knowledge Exchange January 2019 | 5 BAD SCIENCE

Ben Goldacre British physician, academic and science writer

Ben Goldacre is well-known for his popular science books, particularly his best-selling Bad Science. He began by giving some popular examples of bad science, went on to look at how such claims could be properly investigated and concluded with some observations on the future for AI (artificial intelligence) in medicine.

Popular examples Ben is an epidemiologist. Epidemiology is the science of how we know, in the real world, if something is good for you or bad for you. It is best understood as the ‘science of newspaper headlines’. These identify various items which promote health and well-being and others that are bad.7 The problem is that often substances that, one week, are promoted as having health benefits are subsequently revealed as bad. In a similar vein, research has found that for women “housework prevents breast cancer”8 but “shopping could make men impotent”.9

Critical examination Real science is about “critically appraising the evidence for Even when trial results are available, much work is often someone else’s view”. To do that the basis of the research has expended in trying to find a positive outcome. So, for example, to be properly assessed. So, for example, one popular claim is if the expected result is not found in a large sample, maybe in that “red wine could help prevent breast cancer”.10 The research a subgroup it was found, and those results can be emphasised. on which the claim was based was based on the effect of one component of red wine (resveratrol) on cancer cells in a AI laboratory. In practice, we need experiments on real people, Ben expressed some scepticism about the use of AI in but this is often hard to do. Suppose we wanted to test the medicine. He gave an example where AI was used to detect claim that a diet of fresh fruit and vegetables was better than pneumonia by scanning the X-rays of patients. The algorithm a diet of junk food. One way of doing that would be to take a worked well at one hospital but poorly in another. The sample of children at birth, split them into two groups, feed explanation was that the AI image sensor had picked up a the children in the two groups differently and wait until late in metal tag in some scans, identifying that a different scanner their lives before assessing the results. The results would be (used for patients in poorer health) had been used. available in, say, the year 2088, a timescale which is not particularly useful. However, just because there are practical In AI, new technology and its effectiveness has to be carefully barriers, we should not abandon similar approaches. assessed. Ben set out three principles for investing in AI: anyone spending money on AI needs to have the system Randomised controlled trials are studies in which a number of carefully verified at the outset; anyone who says that machine similar people are randomly assigned to two (or more) groups learning will automate tasks and take them away from humans to test a specific drug, treatment or other intervention. is mistaken; and that much of the money going into AI in However, the design and mechanics of such trials are, in Ben’s medicine will be wasted but will leave valuable by-products: in view, often fundamentally flawed. For example, in studies of particular, cleaner data. The process of pulling data together the use of new treatments for asthma or emphysema, the will, itself, be enormously beneficial. patients in such trials may have many other problems and already be taking other drugs. Identifying the effectiveness of It could, indeed, help correct much bad science. a new drug in such conditions is complex.

7 In a recent variant of that theme, the Daily Mail claimed on 8 February 2018 that “‘unhealthy’ treats that are good for you: From steak to beer to donuts, nutritionists reveal the six ‘bad’ things you can embrace guilt-free. Whiskey, donuts and dark chocolate can play a role in a healthy diet. Some ‘bad’ foods can prevent cancer, heart disease and overeating. People do more harm than good when they deprive themselves of the food they love.” https://www.dailymail.co.uk/health/article-5368695/Unhealthy-treats-GOOD-you.html 8 https://www.dailymail.co.uk/health/article-2198057/Housework-reduce-risk-breast-cancer.html 9 https://www.dailymail.co.uk/sciencetech/article-1290753/Shopping-makes-men-impotent.html 10 https://www.telegraph.co.uk/news/uknews/2262150/Red-wine-could-help-prevent-breast-cancer.html

6 | Knowledge Exchange January 2019 WHAT DRIVES BULL AND BEAR MARKETS AND WHERE ARE WE NOW?

Chris Watling Longview Economics

Chris’s view is that we are in a secular bull market for the US The housing market also poses a risk in other economies and in such phases, large corrections are not generally seen. where house price have increased relative to income, notably Many would see high valuations as a precursor to bear in the UK, Sweden, Canada, Australia and New Zealand. markets, but Chris’s work shows that there is a near-zero correlation between an equity index’s price/earnings multiple In the US, the leveraged loan market has become a huge and its following 12, 24 and even 36-month return.11 Similarly, source of funding; and BBB-rated corporate debt has although geopolitical events are often talked about they rarely increased from 5% to 15% of GDP since 2009. Much of this influence the overall trend in the market. debt has been used for stock buybacks. The result is that we now have the most expensive stock market relative to GDP Chris looked at the range of factors which have been behind ever seen. the major (10% or more) declines in the US S&P500 index since 1928. His analysis identifies three major drivers: the Conclusions anticipation of a recession; tight money; and an external shock. Risks remain high, as cheap money has been withdrawn but the corporate sector in the US is generally in good health. What are the chances of us seeing each of these factors Bubbles have emerged in some areas of the debt market and develop? housing, for example. However, the US Fed has some room for changing tack on the direction of policy and, with equity Recession risk at a very low level, the chances of an equity Recessions are typically driven by an overstretched corporate market recovery, particularly in the industrials sector (which sector which is confronted by overly tight monetary policy. has been depressed relative to the overall market) are good. Typically, late in the economic cycle, companies become too leveraged and overly reliant on externally generated sources of cash. Then a monetary tightening (often accompanied by a macro shock, like the bursting of the housing bubble in 2007) causes companies to retrench by cutting capital spending and shedding jobs. That retrenching is the centre of the recession dynamic. Longview Economics’ recession indicators, however, show little chance of a US recession any time soon.

Tight money There is a greater risk from the second factor: tight money. One indicator of that tightness is the growth in the global M1 measure of the money supply which fell to around 3.5% in late 2018.12 M1 money supply growth in China is at its lowest rate since 1989. Various measures of global financial conditions show a similar picture of tightening.13

Vulnerability to a shock The vulnerabilities to such monetary tightening are greatest where bubbles have developed. In China, there has been an enormous build-up of debt with much of it used to finance construction, particularly of new apartments. Many of these are unoccupied and around 20% of the entire housing stock is empty, according to Chris’s estimate. Although this has all the characteristics of a bubble, bubbles do tend to go on much longer than expected.

11 There was a 0.001% correlation between the price/earnings multiple for the S&P500 index in January and the subsequent 12 month returns, over the period 1928- 2018, for example. Source: Longview Economics. 12 GDP-weighted M1 money supply growth in China, US, UK, eurozone and Japan. Source: Longview Economics and Macrobond. 13 Source: Bloomberg Financial Conditions Indices.

Knowledge Exchange January 2019 | 7 US MACROPOLICY OUTLOOK

Mary Rosenbaum Observatory Group

Mary looked at four aspects of the current US macropolicy 2. US Fed Funds rate outlook: monetary policy; fiscal policy; US politics and 20 trade policy.

Monetary policy 15 The Fed is close to meeting its mandate: the economy is operating near capacity; the labour market is tight, probably % 10 beyond full employment (although questions remain) and inflation is near the 2% target. So, the Fed is on a path of completing policy normalisation: reversing its interest rate 5 cuts and shrinking its balance sheet.

0 The Fed’s goal is to move to a neutral interest rate, with the 1955 1960 1965 1970 1975 1980 198519901995 2000 2005 2010 2015 2020 Federal Open Market Committee (FOMC)’s range of estimates Fed Funds rate FOMC median forecast Recessions of neutral being 2.5% to 3.5%. The current policy range is Source: Thomson Reuters Datastream. Data as at 9 January 2019. 2.25% to 2.5% so the FOMC’s median outlook - that there will be two more 25 basis point rate increases this year – would The Fed’s balance sheet rose from US$1 trillion (in November take rates towards the centre of that neutral range (see 2008) to a peak of US$4.5 trillion in late 2014. Initially, when Figure 2). Recent events have probably restrained the Fed’s balance sheet reduction from that level was discussed, many desire to take rates above neutral. Further arguments for thought it would return to its pre-crisis level. Now, however, restraint are institutional bias (“policy only moves as fast as there has been a major change to the assumptions about the the slowest person to join the consensus”, in Mary’s view) and Fed balance sheet’s normal size. The main reason is that banks the recent inflation history (inflation has been consistently have a larger demand for safe assets in the form of reserves at below its 2% target). So, on balance, Mary thinks there will be the Fed. This leads Mary to estimate the normal balance sheet only one or two further 25 basis point rate hikes this year and size in the future will be US$3.0-3.5 trillion, as much as US$1 that 3% will be the upper bound for the Fed Funds rate. trillion higher than assumed less than a year ago.

cont.

8 | Knowledge Exchange January 2019 US MACROPOLICY OUTLOOK

(cont.)

The bigger the assumed normal Fed balance sheet, the vote Republican. Although a cliché, this is correct as a sooner the Fed stops running down its holdings of Treasuries generalisation and helps explains why the Republicans and not reinvesting proceeds from its holdings of mortgage- gained seats in the Senate (each state has two Senate seats backed securities (MBS). If the normal balance sheet is $3.5 so rural Wyoming with a population of 574,000 has the same trillion, that change could well occur in late 2019. number as California with 39 million).

Looking further ahead, to the Fed’s response to the next The resulting Congressional structure means there is less recession or financial crisis, Mary sees attitudes as having for any economically significant legislation. changed. In a recession, given the low level of policy rates, Further tax cuts and infrastructure spending programmes are renewed asset purchases are almost certain: this will no unlikely, in Mary’s view, to get very far. That implies that the longer be seen as ‘unconventional’ monetary policy – it President is likely make more use of the “vector of authority will have moved into the mainstream. In a financial crisis, left to him” - trade policy. aggressive liquidity provision and maturity transformation can be expected. Trade policy Mary thinks that President Trump takes “very few political Fiscal policy risks in confronting China”. The idea that issues with China The good news is that fiscal policy is likely to provide need to be addressed is popular. Many see China’s economic a modest stimulus in 2019, adding to economic growth, and strategic ambitions as a threat. The implication is that according to measures by the Hutchins Centre at Brookings.14 there will be no comprehensive solution to this conflict. There The bad news is that debt levels are set to rise further, can be intervals when tensions come off the boil, but overall reaching levels only seen previously in wartime or sharp Mary expects continued conflict, with mounting economic recessions. The Congressional Budget Office (CBO)’s base costs. If these become too high, President Trump may back case is that Federal debt held by the public rises to almost off, but the White House’s message is that the US should 100% of GDP by 2028 (see Figure 3). However, that makes the expect some pain. unrealistic assumptions that tax cuts will not be extended and that spending cuts will be implemented. A more realistic Trade policy elsewhere is likely to be focused on seeking alternative profile is for a steeper increase. multiple bilateral deals, with Japan and the EU the main priorities. The US can be expected to continue aggressively 3. Federal debt held by the public challenging World Trade Organisation (WTO) norms.

120 Great World Forecast Depression War II

100

80

60 % of GDP 40

20

0 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 2020 2030 CBO actual data and Current Law Baseline forecast Alternative scenario* *Committee for a Responsible Federal Budget (CRFB) calculations based on CBO data Sources: Congressional Budget Office (CBO), Committee for a Responsible Federal Budget (CRFB).

Nevertheless, concerns about rising healthcare costs have eased somewhat, notably because these are no longer rising faster than overall prices.

Politics The mid-term election results confirmed a correlation of demographics with voting patterns: urban, educated, young, non-white and female voters increasingly vote Democratic; less educated, older, white and male voters increasingly

14 https://www.brookings.edu/center/the-hutchins-center-on-fiscal-and-monetary-policy/

Knowledge Exchange January 2019 | 9 ARTIFICIAL INTELLIGENCE AND HEALTHCARE

Dr Neal Bangerter Department of Bioengineering, Imperial College London and EFG Future Leaders panellist

Artificial Intelligence (AI) is the ability of a machine to think or perform cognitive functions we associate with humans. The confluence of developments in three broad areas drives its recent growth: advances in algorithms (sets of rules which are followed to solve a problem); an explosion of data; and an exponential increase in computing and storage power.

As far as algorithmic advances are concerned, Neal emphasised the seminal work of Andrew Ng and a team at in 2009 which drastically reduced the training time for deep-belief networks (one form of algorithm) from several weeks to about a day. He further emphasised work by computer scientist Geoffrey Hinton (University of Toronto and Brain) on image classification using Convolutional Neural Networks (CNNs—another form of algorithm), and recent work by Google DeepMind’s founder of the ImageNet visual object recognition repository. AlphaZero team. AlphaZero learnt three complex games – Dr. Li’s wildly successful ImageNet Challenge, where AI Go, chess, and shogi – by playing itself, without any human researchers submit visual object recognition algorithms to instruction. In 2017, AlphaZero beat Chinese Master Ke Jie compete on accuracy and speed, is widely seen as a catalyst at Go, a centuries-old game considered humankind’s most for the AI proliferation the world is seeing today. Dr. Li claims complicated board game. that “while a lot of people are paying attention to models, more attention needs to be paid to data. Data will redefine The explosion of data has been due to the widespread how we think about models.” adoption of broadband and smartphones. Electronic device users now generate more than 2.5 quintillion bytes of data Although Neal thinks we are still “a long way from artificial per day; and 90% of the world’s data were produced in the general intelligence, where a machine could successfully past two years. Every minute, YouTube users watch more perform any intellectual task that a human being can,” AI than four million videos and mobile users send more than 15 does have a significant role to play in certain areas – notably million texts. Neal emphasised that the availability of such healthcare – over the coming decades. Neal set out a likely vast quantities of digital data are necessary for the training timeline. Over the next five years, data standardisation of artificial intelligence systems to perform tasks traditionally efforts (data acquisition, recording and cleaning) will be the performed by humans. main focus. This will form the basis for the proliferation, over the next ten years, of specialised deep-learning tools Drastic reductions in the price of storing digital data have in healthcare. It will become commonplace for physicians been central in enabling AI. By 2005, the cost of storage to augment their own capabilities with AI-based tools. The had dropped to $0.79/GB from $277/GB ten years earlier. regulatory environment will begin to develop to support Furthermore, Neal pointed out that the introduction of AI-based healthcare decisions. Over the next 20 years, AI and powerful Graphics Processing Units (GPUs) by companies deep learning will make healthcare more accessible and more such as Nvidia in the early 2000s provided much-needed accurate, helping contain costs in the developing world. computing power for training machine learning models. Further advances in processing power came in 2017 when Throughout this phase of development, Neal pointed out Google introduced its Tensor Processing Unit (TPU): it runs that wearables and very active involvement by individuals its own machine learning models 15 to 30 times faster than in monitoring and addressing their health will become current GPUs and CPUs (Central Processing Units). Google commonplace in the developed world, informed by AI-based intends to make its TPU processing power available to the tools using standardised data collection and near- public via the cloud, which will further fuel development of AI. constant monitoring.

Neal emphasised the importance of data itself, rather than In short, in the words of Curtis Langlotz of Stanford Radiology, computer models, in the development of AI. He referred to “AI will not replace physicians. Yet, medical professionals who the work of Dr. Fei-Fei Li, Chief Scientist at Google Cloud and use AI will replace those who don’t.”

10 | Knowledge Exchange January 2019 WASHINGTON AND THE INVESTMENT CLIMATE

Daniel Clifton Strategas

Dan set the scene by saying that “there are more headwinds filed. Second, the wave of deregulation under his presidency coming out of Washington than for many years”. The could start to feed through in boosting productivity, and fundamental aspect of this is a general dissatisfaction among hence economic growth. voters as economic growth has underperformed relative to this historic growth rate. US voters have removed the party in He could also use his executive power to index capital gains power in six out of the past seven elections. The underlying against inflation. That would be very welcome in the capital problem is that economic growth has been weak, although markets and would be an incentive for owners of companies 2018 was the first post-crisis year in which the US hit its pre- to sell, raising tax revenues. There may also be some progress crisis average of a 3.1% p.a. GDP growth rate. on his proposed US$1 trillion infrastructure plan.

Market corrections Trade and tariffs Market corrections, like the one we have just seen, are normal The biggest potential gain could be progress on tariffs during mid-term election years. But usually these sell offs and trade with China. Tariffs are hurting US industry: the occur before the election. In all five previous cases where decline in the ISM manufacturing index in late 2018 was a stocks fell after the mid-term elections (as in the current major warning sign that animal spirits are dampened and case), stocks rallied by an average of 23% in the following investment intentions are lower. China itself is also seeing a nine months. That happens because presidents become sharp softening. So, both countries want a deal. Dan puts a more pro-growth, and for good reason. Only two presidents 70 percent probability of new escalation of tariffs ahead of have not won re-election since WW2 and in both cases the March 1st deadline. But removal of existing tariffs may the unemployment rate had been increasing. With record be more difficult to reach a deal on. He is encouraged that low unemployment and little chance of it increasing, that there is “awesome progress on China buying US goods”. But may suggest President Trump’s re-election prospects are the lack of progress on intellectual property may prevent good. But his approval rating is low. There are two things a larger trade deal. A China trade deal, with an elimination which Trump has already done which can be expected to of the tariffs that have already been imposed, is the most boost economic growth (and by extension his ratings), going impactful stimulus which President Trump could produce, in forward. First, there will be large tax refunds because of Dan’s opinion. cont. rebates from last year’s tax cuts once tax returns have been

Knowledge Exchange January 2019 | 11 (cont.)

Democratic control of the House But more importantly, the budget deficit is heading to the Dan sees the Democrats’ winning of control of the House in significant level of US$1 trillion. With interest rates higher as the mid-term elections as due to: Trump’s low approval rating; well, interest costs will account for a larger amount of public unprecedented Democratic fundraising; and the Democrats’ spending, something which is widely very unpopular. effective use of social media. Democrat Alexandria Ocasio- Cortez (@AOC), the youngest-ever Congresswoman, has more The Democrats hope they can gain complete control of the followers than the combined house leadership and House, Senate and the presidency in the 2020 elections. If has engaged in direct debate with Trump and the House that is with a president from the progressive left, we may well leadership on several issues. be on the way to a nationalised health system.

Congressional oversight of policy will intensify as a result of There is broad agreement on the merits of an infrastructure the change in House control. The big issue is the debt ceiling package, but no agreement on how to pay for it. Dan thinks and the associated macro risk that Congress uses it to force we may see a ‘down payment’ on the proposed package with tax hikes. Gasoline taxes would be one potential target: the the Democrats building on that if they were to take control in federal tax on gasoline is 18.4 cents per gallon and was last January 2021. raised a quarter of a century ago, in 1993: it is not inflation- linked. A tax increase would appeal to many Democrats. Such Investment implications a tax increase could damage President Trump: presidential One important investment theme which Dan has explored approval ratings have, in the past, gone down when gasoline in recent years is the importance of lobbying activity for prices have gone up. equity market performance. Strategas construct an index of the companies most engaged in lobbying activity. Strategas The Mueller report is coming – Dan expects it in mid to late believes the equity market has struggled to quantify the February. There is around a 50% chance in betting markets earning benefit from company lobbying. This factor has led to of Trump being impeached. Although that process may start, outperformance of the strategy over time. The constituents Dan thinks it is highly unlikely he will be impeached by Senate of the basket can change quite markedly on changes in (where 67 of the 100 senators need to vote for such a move). political control but the overall ‘lobbying index’ has shown However, Dan noted that the betting odds gives Trump only a outperformance of the broader index over all medium to long 40 percent probability of being re-elected. time periods: although it lagged the market in 2018.

One external concern is that political upheaval in the US is Conclusions often the setting for “bad events abroad”. The Middle East oil The potential turbulence coming out of Washington is huge. embargo was imposed on the day Nixon fired his staff; Putin Trump, and US politics, will remain at the centre of the invaded Georgia at the time of the Lehman bankruptcy. world’s attention.

12 | Knowledge Exchange January 2019 JAPAN: WHAT’S CHANGED?

Jaewoo Nakajima Evercore ISI

Jaewoo presented at the previous EFGAM Knowledge Exchange in January 2018 and concentrated, in this presentation, on what had changed over the course of the last year. Japan is an economy which looks “better from the inside than the outside”, a finding which is based on his quarterly visits to the economy when, each time, he conducts a survey of companies.

Economic expansion The first thing that has become clearer over the last year is that economic expansion continues and it now looks likely that Japan will have its longest economic expansion ever. That is a major achievement given that the economy’s potential real GDP growth rate is only around 1% p.a., making it more prone to experiencing periods of negative growth and recession. External concerns Jaewoo pointed to several significant milestones in Japan’s External concerns are one reason for this low valuation. expansion. First, tax receipts, which fell from a peak in 1991 until President Trump has threatened to impose tariffs on 2011, were up 6% year-on-year in nominal terms in November to Japanese exports, particularly on autos and, in the short-run, reach an annual rate of ¥68 trillion (see Figure 4). Second, with there is little Japanese companies could do in response. wages steadily increasing and employment increasing to a However, Japanese companies have subsidiaries in China, record high, nominal household income is growing by around Mexico and the UK to produce for local markets, not to supply 4-4.5% year-on-year. Retail sales are almost back to their 1990 the US. Indeed, China’s slowing demand is probably a greater peak level. 93% of the respondents in Evercore ISI’s 2018 Q4 concern than trade tensions with the US. Japanese companies survey say they plan to increase employees’ compensation are currently largely unwilling to invest more in foreign over the next year. markets and, to some extent, domestic capital spending is increasing as an alternative. 63% of Japanese companies 4. Japan: tax receipts included in Evercore ISI’s 2018 Q4 survey expect to increase their domestic capital spending, with improvements to 70 headquarters a common theme. Japanese companies have, in 60 aggregate, around ¥2.5tn in cash. They have the resources to

50 invest more, even as payments continue to increase.

40 Looking ahead, some are concerned that the construction

Y trillion 30

JP sector may face a sharp decline after the boost in the run-

20 up to the 2020 Olympics. But Japan has a series of major international events including the Rugby World Cup in 2019 10 and the 2025 world expo in Osaka. In the equity market, 0 construction contractors trade at just 10-11 times earnings, 1980 1985 1990 1995 2000 2005 2010 2015 2020 which is very cheap in Jaewoo’s view. Tax receipts, 12-month sum, yen trillion Source: Evercore ISI; data as at 9 January 2019. Structural reform Structural reform continues and Jaewoo is even more positive Equity market size and valuation about the changes that are taking place than last year. The Although Japan has “become almost irrelevant to the global participation rate of prime-aged women has reached a economic story” it still has the world’s second largest equity new record (72%). There are now 1.5 million foreign workers market. Moreover, it is one which is cheaply valued: the Topix in Japan and Jaewoo expects the total to reach 2.4 million index trades on a price/earnings multiple of just 12 times. The by 2020. Prime Minister Abe has proposed increasing the last time the market was as lowly valued was in 2011, after the retirement age and, in sharp contrast to the rest of the world, Fukushima disaster. this is popular as many want to work as long as they are

cont.

Knowledge Exchange January 2019 | 13 JAPAN: WHAT’S CHANGED?

(cont.) able to do so. The change could, over time, add as many as 3 It is also now conceivable that, especially with the China-US million people to Japan’s 65 million workforce, and thereby trade tensions, Japanese companies will increase their market help raise Japan’s growth potential. share in China. Indeed, although overall car sales in China have weakened, sales have risen. The next scheduled increase in the sales tax in October is, in Jaewoo’s opinion, likely to go ahead: there is a lot of political Japan is also now attracting far more tourists, especially from determination to push it through and if it does go ahead it China (see Figure 5). An important part of the reason is that implies the government thinks the economy is strong enough Japan is now, on the basis of international comparisons, a to withstand it. Fiscal stimulus to offset the tax increase is, relatively cheap location. however, expected. 5. Japan: tourism booming Changes to the corporate governance code in 2018 have forced 35 companies to make their succession plans clearer, which is welcome, but concerns about Japanese attitudes to foreign 30 corporate management have been raised as a result of the 25 scandal surrounding Carlos Ghosn’s dismissal from Nissan. 20

Inflation Millions 15

Last year, Jaewoo thought that markets could be surprised by 10 the Bank of Japan achieving its 2% inflation target. Although producer prices are rising by 3% year-on-year, that has not 5 fed through to higher consumer price inflation and the 0 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2% inflation target is unlikely to be hit any time soon. The restaurant sector provides one example of why there is so Japan: visitors from abroad (millions at an annual rate) little ability to pass on higher wages and costs to consumers. Source: Evercore ISI; data as at 9 January 2019. There are more restaurants in Japan than in all of the United States (700,000 compared to 650,000) even though Japan’s Conclusion population is only 127m, 200m less than the US. This excess Important changes are taking place in Japan but it now capacity makes the market highly competitive. At some attracts little attention from foreign investors. Therein lies point, if there is enough upward pressure on wages, the least the opportunity, especially given low current valuations. competitive will have to leave the industry. But the downside of having strong balance sheets, little debt, and low interest rates is that such pressures are slow to emerge.

Banks, homebuilding and retail space are other sectors with excess capacity and lots of competition. Industry consolidation is, however, finally happening with supermarket chains.

China-Japan relations The “biggest surprise in 2018” for Jaewoo was the improvement in Sino-Japanese relations. Prime Minister Abe visited Beijing in October, the first time in seven years. Although not a new idea, they discussed joint listings of China ETFs in Japan and Japan ETFs in China. Mainland China investors do not have access to international equity products, so if the plans are agreed, Japanese equities could provide their first such experience. For Japan, such foreign investors will be welcome, especially when, at some point, the Bank of Japan stops buying equity ETFs. Many “made in Japan” products (such as baby formula and diapers) are popular in China where they have a reputation for product safety.

14 | Knowledge Exchange January 2019 BREXIT

Stephen Booth Open Europe

Open Europe is a think-tank based in Westminster with an but applies “unless and until” it is superseded. Stephen thinks office in Brussels: it was neutral in the Brexit referendum the UK got “quite a good deal on the backstop” which the EU campaign but is towards the ‘eurosceptic end’ of commentators. was reluctant to give.

Brexit: economic impact Stephen thinks that, although it poses major political and Stephen thinks that when we look back at Brexit it will be some practical problems, the Northern Irish backstop within seen as a political rather than an economic crisis. The worst the withdrawal agreement potentially delivers much of case impact on GDP in a study by Open Europe in conjunction what the UK would like: remaining integrated with the single with Ciuriak Consulting shows UK GDP 2.2% lower in 2030 market for goods is clearly in the UK’s interest given its high than it would have been if the UK had remained in the EU. level of integration in EU supply chains. The UK is much more Moreover, much of that could be offset if there were total globally orientated in services and for large parts of the unilateral liberalisation of goods trade (adding 1.3% to GDP service sector, the EU is irrelevant, so being outside the single in 2030), services trade (adding 0.4%) and foreign direct market for services also makes sense. Moreover, in financial investment (adding 0.04%). services the UK cannot realistically be takers of EU rules. So, a deal which puts in a hybrid solution is broadly sensible. The Open Europe’s estimated impact is towards the optimistic backstop therefore lays the foundations for a bespoke UK end of the range of forecasts (from a 2% to a 7% reduction in deal, which the EU had previously said would not be on offer. GDP by 2030); and the offsetting unilateral liberalisation of trade is not easy. However, forecasts of the impact cannot be Future for the UK and the EU made with a high deal of certainty: the UK’s Office for Budget If the withdrawal agreement is finally passed, then ‘remain’ Responsibility recently stated that “any adjustment we do will become ‘re-join’, which arguably could be much more make to our potential growth forecast as a result of Brexit difficult. The UK-EU relationship is likely to cool for some time. is likely to be relatively small compared to the degree of Greater UK-EU divergence is likely. The UK’s vision of what a uncertainty surrounding the underlying path”.15 successful Brexit will look like still seems unclear, but as the UK has not been a fully engaged member of the EU – opting Looking further ahead, the UK is projected to have more than out of many aspects of EU integration (notably the Schengen a 25% increase in population by 2080, whereas the remaining area and the single currency) – maybe the likely change will EU 27 countries are expected to see a small decline.16 That not be as great as many think. argues for UK potential growth being higher than in the EU 27 on a longer-term basis. As services generally become more important for the global economy, and the UK has notable strengths in this area, it Short-term politics could be in a better position to benefit. The short-term politics of Brexit are attracting much attention but ultimately there are only three possible After withdrawal, Westminster will be accountable for more outcomes: leave the EU with no deal; leave with a version things: it will no longer be possible to “blame everything on of the Prime Minister’s deal; or remain in the EU. The Prime Brussels”. For the EU27 countries, they cannot realistically Minister’s deal comprises a Withdrawal Agreement and have the same foreign ambitions without the UK: the UK and a Political Declaration. If a version of the deal is finally France are the only two significant military powers in the approved by parliament, then the key elements are that the EU, for example. France and Germany may find agreement UK will remain closely aligned to the single market for goods, on key issues is more difficult without the UK’s (sometimes) out of the single market for services and will no longer allow mediating influence. free movement of people from the rest of the EU. Following the parliamentary vote against the Prime Minister’s If the deal is passed, then the UK enters a transitional phase Withdrawal Agreement on 15 January, after Stephen’s up until 31 December 2020. Before 1 July 2020, the UK and EU presentation, there is a heightened level of uncertainty about must jointly decide whether to extend the transition phase, the path of Brexit. Stephen thinks that a negotiated exit, with for a period of up to two years. If a new UK-EU relationship the deal subject to further amendment domestically and in is not ready by the end of the transition phase, the backstop Brussels, remains the most likely scenario. Parliament is likely comes into force. This backstop is intended to be temporary to set a ‘softer’ direction of travel for the future relationship,

cont. 15 Office for Budget Responsibility Discussion Paper No.3 Brexit and the OBR’s forecasts October 2018. https://obr.uk/docs/dlm_uploads/BrexitDiscussionWebVersion.pdf 16 Source: Eurostat 2018 projections. Knowledge Exchange January 2019 | 15 BREXIT

(cont.) potentially mandating the government to pursue a permanent 6. Cumulative change to real GDP from baseline levels in 2030 UK-EU customs union and mirror future EU social and environmental laws. This could be reflected in amendments Real GDP (%) to the political declaration. The EU might yet be convinced No Deal Brexit impacts -2.21 to agree further assurances on the ‘temporary’ nature of the backstop, which could secure support of more Brexiteers. Total Unilateral liberalisation impacts 1.71 However, the size of the 15 January defeat was at the upper Unilateral Goods 1.26 end of expectations and securing sufficient support in Unilateral Services 0.41 parliament will be a significant challenge. Unilateral FDI 0.04

No Deal Brexit + Unilateral liberalisation impacts -0.50

Source: Open Europe; data as at 9 January 2019.

Exploring the twists and turns of Brexit

16 | Knowledge Exchange January 2019 SUSTAINABILITY

Jason Jay Director, Sustainability Initiative at MIT Sloan and EFG Future Leaders panellist

Sustainable investment is becoming much more widely adopted. In the US, at the start of 2018, US$11.6 trillion of assets were managed using various environmental, social and governance (ESG) criteria. However, there are still important hurdles to overcome to more widespread adoption. Jason’s presentation focussed on three of these.

Hurdle 1: Mental models. The mental models of participants in the investment industry are generally built on quantitative factors such as risk and return, portfolio optimisation and fees. ESG criteria cover a wide range of factors: from air pollution to audit committee structures; from biodiversity to bribery; from child labour to climate change. These criteria are often seen as in conflict with the standard financial criteria. Indeed that conflict is often seen in everyday life: ecological cleaning products that maybe do not work as well as conventional ones; electric cars which don’t have the performance of their conventional fuel competitors. error; the use of different indicators; and different processes for aggregation. In this environment, analysts can take This makes many of the conversations about adopting ESG a very simple view – such as “I like company X for these overtly challenging and political. One approach is to say that reasons” – and not make a proper assessment of each of the some investment performance may have to be sacrificed many ESG criteria. to meet ESG requirements. However, a body of evidence suggests that performance need not be compromised. Hurdle 3: Impact Perhaps the most comprehensive assessment of the link Many people want to behave responsibly and also want between ESG criteria and corporate financial performance to feel good about their investments. But if we want, for (CFP) found that “the business case for ESG investing is example, less gun crime, what can we do? One approach empirically very well founded. Roughly 90% of studies find a would be to provide capital to firms that actively seek to nonnegative ESG–CFP relation.” reduce this. But in a well-functioning , most firms have access to capital. An alternative would be to buy Furthermore, a recent study mapping sustainability into gun companies and put pressure on them to deal with characteristics on a firm-specific basis showed that firms with gun crime themselves through, for example, tighter checks, good ratings on material sustainability issues significantly providing information about how the guns they sell are used, outperformed firms with poor ratings. and so on. Jason gave an example of that approach – “nuns with guns” – where a nuns’ pension fund invested in gun Hurdle 2: Data companies to seek a change in their behaviour. The second hurdle is the issue of whether the data can be trusted. The general approach taken is to collect ESG data, do Research in this area has shown that investors can a rating of companies based on this and then an analysis of affect companies through such shareholder engagement, performance in relation to it. Data availability is growing: the especially when the costs of demanded reforms are low, proportion of S&P 500 companies reporting such data was investors wield influence, and companies have prior 85% 2017, up from 20% in 2011. Even so, there are 45,000 listed experience with engagement. companies in the world and we have ESG data for only 7,000 of these. Conclusion Overcoming these hurdles to sustainable investing is no Another major concern is that there is little correlation easy task, yet there is an important and growing demand between different agency rankings: only 66% between two for investing in a sustainable manner. Improvements in major ones, for example. For credit ratings, the correlation data gathering and analysis may well be one of the most between the major agencies is typically 90-95%. The important practical ways in which this can be advanced in explanation of the weak correlation lies in: measurement the coming years.

Knowledge Exchange January 2019 | 17 ARTIFICIAL INTELLIGENCE AND AUTONOMOUS DRIVING

Pierre Ferragu New Street Research

Pierre Ferragu discussed two important technology trends: silicon architecture” and the use of 5G technology to improve artificial intelligence and autonomous driving. the networking infrastructure.

Artificial Intelligence Autonomous cars Artificial intelligence (AI) can better be termed ‘artificial Although there is much hype, “driverless cars are…not stupidity’ in Pierre’s view. The reason is that AI involves stages ubiquitous and it’s going to be a really long time…before you – classification, deep learning and reinforcement learning – see this technology everywhere” in the view of John Krafcik, and each of these are not particularly intelligent. CEO of , a division of Alphabet. Waymo is “clearly the leader in autonomous technology”, in Pierre’s view. Its Classification involves working through historic data, finding approach (termed “the cliff” by Pierre) has been to develop commonalities and creating classes of data. Deep learning a small number of fully autonomous cars. Currently around uses multiple layers of classification and training to build 600 cars are close to Level 5 autonomy: the level where the complex and refined classes. Reinforcement learning involves vehicle can take over the entire driving function in all cases. an AI system trying a solution, getting feedback and adjusting How close a car comes to achieving that level of autonomy accordingly. is measured by the number of disengagements (that is, the number of times the autonomous system is overridden by the However, classification is not the generation of an idea; human driver) per 1000 miles driven. Waymo stands out as deep learning may well be flawed; and reinforcement is not having a very low number of disengagements (only one or two understanding. per 1000 miles driven) and a very high total (350,000) of test miles driven. The most important element of the learning process for AI is having more data. That is more important, in Pierre’s view More conventional car companies are using a “creep-up” than having a better model. Indeed, with more data it is often approach, gradually introducing more autonomous features. the case that the simpler the model, the better the result. Currently around 500m cars have Level 1 autonomy features (which assist the human driver - cruise control, for example) There is no denying, however, that AI can be very powerful. and 4m have Level 2 autonomy. AlphaZero is a reinforcement learning algorithm that has had notable success in playing AlphaGo and chess. Google Tesla has taken a “straight shot” approach, with around Translate has improved in its accuracy over time. And ADAS 400,000 cars near to level 3 autonomy. (Advanced driver-assistance systems) have become more sophisticated. Pierre sees Waymo’s “cliff” approach as too expensive in terms of money and time: it will likely take many years to Pierre sees three imminent implications for AI. First, there achieve profitability and it may struggle on its own. However, will be a boom in the amount of data generated. A connected its technology could be adopted by a ride-sharing company, car generates around 25GB of data per hour (equivalent to 30 leading it to become more widely adopted and helping cash simultaneous high definition movies). Second, to process all generation. The “creep up” approach is essentially reliant this data, there will be a boom in processing power. Third, a on hardware, which makes incremental improvements in virtuous circle will develop in which more data leads to better autonomous functions more difficult. Tesla’s approach is, analytics; better analytics help develop better products; in contrast, software defined and the company has clear better products are used more widely and employ more pricing power for its products. Pierre sees Tesla as one of sensors; which in turn generate more data. the potential winners in the move to autonomous vehicles, along with Uber, the leader in ride sharing, Softbank (with the The best of AI is yet to come, in Pierre’s view. In the first substantial involvement of its Vision Fund in this area of the phase, web companies used AI largely for themselves; in the market) and companies specialising in new sensor technology second phase, the cloud and big data are used for AI; in the (such as Infineon and ON). third phase sensors generate data which is sent to the cloud for learning and is processed locally for instant reference.

For the technology infrastructure, we can expect an “explosion in the use of sensors” and radar, more processing power with leading edge semiconductors and a “reset of the

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Knowledge Exchange January 2019 | 19