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#Market Strategy — 19.02.2019

Tomorrow’s Security: Modernising Protection & Cyber Security And Using The Blockchain

THEME 6

Security has become a major preoccupation for individuals, businesses and governments.

This fast-growing market offers attractive prospects for companies operating in the protection of goods and people, quality control and cybersecurity.

Theme d'investissement 6 | BNP PARIBAS WEALTH MANAGEMENT

OUR RECOMMENDATIONS

Geographical region: worldwide.  Emerging Market and developed economies are concerned.

Asset class: this theme invests in stock markets through funds and individual stocks.

Risk profile: this theme is extremely sensitive to market movements owing to its exposure to technological and industrial activities.

Investment horizon: long term. This investment theme is driven by a long-term structural trend.

 

A growing market  

In an increasingly complex and interconnected world, security is becoming a major preoccupation for all economic players (individuals, businesses and governments). Companies that offer their clients better security have a high potential for revenue growth.

There are three main types of security needs:

  • Secure spaces: the aim is to protect against specific risks by securing certain spaces. For example, surveillance systems for homes and businesses, airbags in vehicles, infrastructure to make roads safer or protect airports.
  • Quality control: legislation is becoming increasingly stringent and sometimes imposes tight controls in some sectors of the economy. These tests are particularly essential in the food, pharmaceutical and environmental industries.
  • Improvement of IT security: in view of the growing use of the Internet and networks, protecting information technology is becoming a priority. Hacking is on the rise across the globe, representing a mammoth cost for companies. The Facebook scandal and the hacked Yahoo! accounts helped to draw economic players' attention. The International Data Corporation estimates that between now and 2020, companies will be required to spend a total of $100 billion on security software and ancillary services to combat cyberattack threats.

Companies in the security theme mainly operate in the areas of technology (IT Services) and industry (Commercial Services & Supplies and Capital Goods). 

The potential of blockchain technology

Within the security theme, the blockchain is a new technology for the storage and secure transmission of data. This technology allows for digital security, benefiting not only transactions but also valuable documents. It also helps to monitor supply chains and is used for "smart contracts", which are based on a conditional execution without the need for intermediaries (Bernard Marr, "Blockchain is changing our world: Here are the best practical examples of how it is used in 2018", Forbes, January 2018.).  Thanks to this technology, contracts are secure.

Blockchain technology goes well beyond the controversial methods of payment such as crypto-currencies, e.g. Bitcoin (given their opaque and speculative nature, we do not recommend buying crypto-currencies.). It is a good way of making secure electronic payments and facilitating international trade finance.

In addition, companies wishing to go further in securing their production processes can track and trace their products across the supply chain, thanks to this new technology, for example in the Agrifood (e.g. tracking meat) and Diamond industries and in Maritime Transport.

Another aspect of blockchain technology is to create safe property registers in areas such as luxury goods, land ownership and real estate, and help governments to manage census data.  Finally, it may be used to ramp up efficiency and curb fraud in the Insurance sector.

Therefore, the large number of usages suggests that in today's increasingly digital world, this kind of technology could expand considerably in the coming decades.

In conclusion, everyone wants to live in a safer and more secure world.  There is a growing number of needs and the list is already long. We recommend investing in this theme through individual stocks and investment funds. All markets—Emerging and developed—are concerned.

MAIN RISKS

This theme's stockpicking concentrates on companies that are dependent on the economic climate and sensitive to market sentiment. Although it is driven by a long-term trend, this theme may be penalised by a marked economic slowdown.

Blockchain technology is based on algorithms that require significant computing power. Excessive energy consumption poses a problem for the environment.  Moreover, the complexity of blockchain technology and associated questions could hamper its development.