COLUMN: Danske Bank's investment strategist, Lars Skovgaard Andersen, discusses the equity market theme where he currently sees the greatest potential.

We humans are not designed to perform continuous hard physical labour, we do it because it is our job, but it wears us down. Hence, anything that can make our work lives easier has often proved to be a good business idea over the years. Moreover, the number of working age people here in the Western world is declining, so there will be fewer and fewer of us to keep the wheels turning and take care of the rising number of elderly. We will therefore have to work smarter.

This is where cobots come into the picture. The term cobot is derived from collaborative robot, which is a robot that works with you, in contrast to a classical robot, which is more autonomous. Cobots comprise an element of the investment theme robotics and automation, which is one of the equity market themes where we at Danske Bank see the most attractive return potential in the coming years.

How cobots work

Somewhat simplified, you could say that a cobot is a helper, and together you can accomplish a number of tasks. That could include lifting objects, which if done repeatedly would otherwise wear you down physically, or handling chemicals or hot objects.

Moreover, cobots do not require facilities to be heavily modified before you can use them, they can be recoded and thus used for several different tasks and, finally, prices have now fallen to more reasonable levels. This means cobots are also interesting for SMVs, which increases the opportunities and potential for sales. The healthcare sector is also an area with a huge potential for cobot use - for example, by helping with the more physical aspects of the job, such as lifting patients.

In the shorter term, the corona crisis may provide a boost for the robotics and automation theme, including cobots.

Lars Skovgaard Andersen

Investment strategist, Danske Bank

Major investments on the way

In our view, therefore, the question is not whether more money will be spent on cobots in the future, but when the big push will come. Bank of America Merrill Lynch, a US investment bank, estimates in a new report that the market for cobots will be around USD 500 million this year, rising to USD 1.8 billion in 2025. By then, however, they expect cobots to still only account for 6 per cent of the total number of installed robots, which means there is a great deal more growth potential, according to the investment bank.

In the shorter term, the corona crisis may provide a boost for the robotics and automation theme, including cobots. The pandemic has generally caused companies to hold back on investments. Bank of America Merrill Lynch, for example, estimates that European companies have EUR 462 billion ready to be spent on increased investment - and when companies invest, they naturally have a great deal of focus on investments that can benefit them going forward. So, becoming a smarter company would of course be high on the agenda.

Support from a second trend

The focus on smarter companies goes hand in hand with the trend of many companies moving production closer to consumers in the US and Europe to achieve a more robust supply and production chain. Investment in robotics and automation is vital here to reduce the economic burden of higher wages compared to the developing countries of Asia and so on.

If I right now had to select one equity market theme that in both the short and slightly longer term has a very attractive potential, it would be robotics and automation, with cobots as an important component of that.

This content is not investment advice - you should always speak to an advisor about how a possible investment matches your investment profile before making an investment.

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