The rise of the 'Sharing Economy'

The trend will probably remain suppressed due to the effect of the strengthening US dollar, the tumbling exports and the lower fuel cost, which led to further cuts in investment in manufacturing projects.

On the other hand, there has been a recent development of the so-called “Sharing Economy” that took in a variety of forms, including IT technology in optimisation of resources through redistribution, sharing, and reuse of excess capacity. This rising new business model has edged up the service sector. It is not only able to offset the falling manufacturing data, but also create more jobs and demand for services.

The key of the sharing economy is people – the active citizen and participants who engage in a community to which they all contribute and benefit from. The implication of a Sharing Economy is hotly debated in the research world and there is one clear central argument that the Sharing Economy brings more wage-earning opportunities to more people.

The concept can be described when information about goods is shared, or when participants share access to products or services, rather than having individual ownership. For example, a peer-to-peer company like ‘eBay’ provides an advertising platform and allows anyone to become a retailer on their website, where people can play the roles of supplier, creator, and distributor, who agree to a binding contract for peer-to-peer trade. Bedrooms and car-sharing are the most prominent cases of this business model, which includes companies such as Airbnb and Uber.

People can rent beds, cars, boats and other assets directly from each other via the Internet. This kind of business activities will create collaborative consumption, which is a good idea for several reasons – the owner of the asset makes money by utilising the underused asset, and the emerging IT technology helps reducing transaction costs, making the idea of sharing asset cheaper and easier than ever before, as well as making it possible on a large-scale basis.

With everyone relying on China’s consumption, a slowdown in China’s economy has pushed down the global manufacturing industry. However, the improvement in technology in the form of the digital economy has given rise to the concept of efficient utilisation of assets, easing the means of communication and sharing. Consumers now have the ability to optimise their assets, reduce transaction cost, and thus create more demand and jobs. In turn, this changing behaviour drives the service sector and is able to offset the slowdown in the manufacturing industry. This can be seen from the JPM global manufacturing PMI, which slid to 50.7 in September 2015 compared to 52.2 a year ago while the JPM global service PMI remains well above the expansion level of 50, at 53.3 in September 2015, compared to 55.2 a year ago.(source: Bloomberg, November 2, 2015)

In the next five years, we could possibly see a changing trend in manufacturing component in the world GDP where people consume less resources and efficiently utilise their assets.

The Sharing Economy would become the rising star in the era of the digital economy. Eventually, the service sector could play the most important role in determination of world economic growth and possibly raise expected returns for the investors who seek opportunities from the rise of the Sharing Economy. Investment contains risk. The investor should thoroughly study prospectus, product features and return condition before investing.

Contributed by Asset Plus Fund management.