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Equity

Tomorrow’s innovation, today’s opportunities

Christopher Lee David Cummins Harold H. La

January 7, 2024

An innovative company is one that consistently produces a unique product or service that is not easily replicated by other companies. It also has the ability to drive the product or service towards long-term business growth and profitability. Unlike inventors, innovators are essentially people who take great ideas and convert them into great products.

 

The geography of innovation continues to evolve. Countries like the US and China have established innovation ecosystem are fuelling innovation catalysts and triggering world-changing innovation. The ingredients of a successful innovation ecosystem are what our analyst call the 5 Cs: connectivity (online communications), capital (money to invest), courage (risk appetite to invest), concentration of expertise, and channels (exit channels like IPO or M&A).

Innovation remains a critical driver for success today

Innovation remains a critical driver for success today

Past results are not a guarantee of future results.
Source: May 2023, Most Innovative Companies 2023, BCG. Chart compares 50 Most Innovative Companies’ one-year total shareholder returns (TSR) for that year against MSCI World. Top 50 companies are reweighted annually to reflect changes to the list.

During the early days of the internet, we witnessed the birth of Alibaba and Baidu, which were dubbed the eBay and Google of China. What followed was a material platform shift to mobile. At that time, China had already developed an ecosystem with the 5Cs, which underpinned the creation of world-changing innovation in mobile e-commerce, super apps and short videos.

 

In the US, many companies have been able to navigate regulatory risks in the past decades through a combination of a strong legal team, political gridlock, and luck. With successful innovation ecosystems in place, we should continue to see future innovation coming from both the US and China.

 

Looking ahead, it is important to focus on how companies retain their DNA and the qualities that made them great despite the major cost-cutting measures. These companies have the potential for a longer growth runway. A higher rate environment has indeed caused much financial pain. But it has also made companies more focused, leaner, and think of ways to generate returns at a faster pace. In this tough environment, it becomes clearer which companies are improving faster than the others.

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CHIL

Christopher Lee is an equity investment analyst with research responsibility for U.S. pharmaceuticals and biotechnology. He has 16 years of investment industry experience (as of 12/31/2023). He holds a medical degree from Columbia University and a bachelor's degree in molecular biophysics and biochemistry from Yale.

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David Cummins is an equity investment analyst at Capital Group with research responsibility for Asian internet companies. He has 12 years of investment industry experience and has been with Capital Group for eight years. Earlier in his career at Capital, David also covered health care equipment in Australia and New Zealand, as well as Australian small- and mid-cap companies as a generalist. David began his career at Capital as an MBA summer intern in London researching the aquaculture industry. Prior to joining Capital, David founded a travel-related internet startup and worked as a venture capitalist in Silicon Valley and China. He holds an MBA from the Wharton School of the University of Pennsylvania and a master’s in international studies from the Lauder Institute at the University of Pennsylvania. David is based in Singapore.

Harold H. La

Harold H. La is an equity portfolio manager with 26 years of experience (as of 12/31/2023). He holds an MBA from Kellogg School of Management at Northwestern University and a bachelor’s degree from the University of Western Ontario.

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