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Equity markets and the fountain of youth

COLUMN: If you have problems understanding the young people of today, you may be missing out on attractive investment opportunities. The key word here is eSports, says Danske Bank’s investment strategist Lars Skovgaard Andersen.

In 1859 the periodical Scientific American wrote about “a sedentary game that had spread across the country, taking up the time of young people and having a negative impact on their physical and moral well-being”. The terrible game was ...chess. A political hearing was held in the US in the 1950s into another threat to the youth of the day and their physical and mental health – comics.

Adults have always had difficulty understanding – and been quick to judge – what young people spend their time on. US sociologist David Finkelhor has even coined a term for the phenomenon – juvenoia, a combination of the words juvenile and paranoia.

But if you as an investor suffer from juvenoia, you may miss out on some attractive investment opportunities. Who would not like to have invested in Marvel or Disney?

What are young people getting up to now?
Nowadays, computer games are what are causing many parents to frown disapprovingly, yet the trend is growing massively worldwide. Computer games are not just the current chess or comics, but also sport and entertainment that millions of young people follow as spectators. 

Broadly defined as eSports, tournaments regularly take place around the world with large financial prizes and huge spectator interest in games such as Counter-Strike, Dota 2 and League of Legends. When the eSport team OG won The International tournament in Dota 2 last year they walked away with prize money of USD 11.2 million, while the final of the League of Legends world championship was watched by more than 200 million viewers last year.

So no, computer games and eSports are not just guys having fun, but also big business – and big investment.

Understanding the entire value chain

As an investor, you could of course buy into the companies that produce the games, but the trend encompasses much more than that. A significant share of the money is tied up in the commercial rights to tournaments – which are shown on the Disney-owned sports channel ESPN among others – and also in advertising, sponsorships, sales of equipment from gamer computers to gamer chairs, and much more.

Lars Skovgaard Andersen

Investment strategist, Danske Bank

Investors should also note that it is not only the world’s best players and the big tournaments that attract viewers. Many gamers spend hours and hours watching videos of other gamers who stream their games on Youtube or Twitch, which is an Amazon-owned website for gamers. 

Have you heard of Richard Blevins? He also goes under the moniker Ninja, and is a gamer with more than 13 million followers on Twitch. In spring 2018 he was – as measured by the extent of social media interaction – found to be more popular than football stars like Ronaldo and Neymar.

From millions to billions

Data from investment bank Bank of America Merrill Lynch indicates there will be around 2.6 billion people playing or watching computer games in 2019 compared to 100 million in 1995. In other words, young people are onto something very interesting here, and it is an area we at Danske Bank are keeping an eye on, as the financial potential is so huge.

That being said, computer games, like the rest of the digital world, may face increased regulation, as development in recent decades has been so fast that legislators have had difficulty keeping up and establishing the necessary frameworks to protect consumers.

Nevertheless, that does not detract from the overall trend for computer games and eSports, which more broadly will also support, for example, producers of semi-conductors – the components that are central to all that tech hardware; and indeed this is an industry we see as having interesting perspectives. 

As always, however, investors should take a cautious and well-considered approach if they see an attractive potential in computer games and eSports. And that has nothing to do with juvenoia, it’s just plain common sense.

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.