Here are Bank of America’s top 10 investing themes to watch over the next decade

With the decade drawing to a close, Bank of America has identified 10 important investing themes to watch over the next 10 years. Underpinning the list is the tectonic societal shifts that the firm anticipates will play out over the next decade.

The firm said the coming decade will be “unlike any before it” as the world’s social, environmental, political and economic systems face “escalating challenges.” Megatrends will reach their boiling point in the 2020s, which will lead to changes in how governments, companies, markets and society more broadly operate, BofA predicts.

“We expect the 2020s will overhaul old paradigms, disrupt business models, and produce new trends that will shape our future. In the next 10 years, we should see increased automation, a global recession, unprecedented innovation, serious environmental challenges, the death of quantitative easing, tectonic shifts in demographics and the end of globalization,” Bank of America analysts led by Haim Israel said in a note to clients Monday.

CNBC was granted permission to publish the full list.

Bank of America says globalization has already peaked, which means that over the next decade there will be a greater focus on all things local.

“The 1981-2016 era of unchecked flow of goods, people and capital is coming to an end, catalyzed by the widespread recognition that while globalization has meant lower consumer prices, it has also meant slower growth, precarious employment and social disruption,” Israel wrote.

The firm anticipates that while at first disruption in the global flow of things will increase the cost of doing business, eventually it will lead to a rebalancing that will raise productivity and set the global economy on a path to higher, sustainable growth.

“Countries will develop explicit national industrial policies and boost spending on R&D to foster local innovation, protect nascent industries, and shield national champions from hostile foreign takeovers,” the analysts said.

Within a more nationalistic backdrop, investors should opt to own real assets like commodities, real estate and precious metals, as well as infrastructure and defense names. As things shift closer to home, small-cap and value stocks look better positioned than large-cap and growth stocks, according to the report.

The firm predicts that a number of other things will peak during the 2020s, including oil, cars and inequality; the population will age and people will own fewer things as the economy shifts from ownership to the sharing.

The economic picture entering the next decade isn’t exactly rosy. Stocks may be hovering around all-time highs, but a record 90% of recipients in the BofA Global Fund Manager Survey said the world’s economy is late in the boom cycle.

“We leave the 2010s stuck in an economic regime characterized by low growth and low inflation. Real GDP has averaged just 2% in the US, 1% in the EU and Japan, and halved from 12% to 6% in China as it rebalances towards a consumer rather than export-led economy,” the firm said.

Bank of America sees today’s bond market bubble as the “biggest vulnerability” for markets heading into 2020.

“In the coming years a policy mistake [inflation targeting/modern monetary theory] and/or the start of policy impotence (central banks pushing on a string) will likely cause a jump in interest rate volatility, end the decade-long bullish combo of minimum rates-maximum profits, and signal the big top in asset prices. A disorderly rise in bond yields would likely cause extreme pain as Wall St deleverages,” the note said.

To hedge against a coming recession, the firm said to own things like gold and gold miners, as well as companies in monopoly areas like the utility sector since companies having pricing power even in downturns.

High-quality companies in areas where there’s low political risk, and only a few key players, should also do well. Bank of America included things like national defense, waste management, data processing and payments, and global beverages in this category.

An aging worldwide population coupled with the rise of a middle class in emerging markets will shift consumer habits and tastes over the next 10 years.

“Companies will need to adapt or face disruption from the emerging spending power not just of Millennials but also of new Gen Z consumers (e-commerce, same-day delivery),” the firm said. Tech-compatability, sustainability, and experiences over traditional “goods” are among the trends expected to accelerate over the next decade

As people age, there will also be a big opportunity for advancements in healthcare targeting lift expectancy and quality. “Immortality’ may prove the most interesting secular theme in the 2020s,” Israel said.

Consumers are increasingly focused on the many and broad implications of climate change, which creates opportunity in areas like clean energy, electric vehicles, energy efficiency, new farming, water infrastructure and meat alternatives.

“Efforts to curb global warming require behavioral and systemic changes that will provide substantial opportunities for investors. … BofAML estimates that the clean energy market is already worth [$300 billion], while the global waste industry presents a [$2 trillion] opportunity. Likewise, water infrastructure will need a minimum cumulative investment of [$7.5 trillion to 2030] to keep up with projected growth,” the firm said.

A sharper focus on climate change will also be one of the forces driving an increase in environmental, social and corporate governance and impact investing over the next decade.

“We enter the 2020s with capitalism focused purely on profit maximization on the cusp of reform — as it shifts away from shareholder supremacy towards greater involvement of stakeholders, i.e., moral capitalism,” the firm said.

Bank of America estimates that $20 trillion — the size of the S&P 500 — will flow into environmental, social and governance strategies over the next 20 years as millennials and Generation Z become the primary investors.

The U.S. and China are currently battling to lead global artificial intelligence innovation, but this “splinternet” divide will disappear by 2030 as China becomes the world leader, Bank of America said.

“We believe the current trade war will transition towards a tech war in the 2020s, which will see a new ‘arms race’ between the US and China to reach national superiority in technology over the long term vis-a-vis Quantum Computing, Big Data, 5G, Artificial Intelligence, Electric Vehicles, Robotics, and Cybersecurity etc.,” the firm said.

Baidu, Alibaba and Tencent will be primed to take advantage of the AI revolution, at the expense of the so-called “FAANG” stocks — Facebok, Amazon, Apple, Netflix and Google-parent Alphabet.

“Just over half the population is connected in China but that is already nearly triple the number of internet users in the US, suggesting China’s annual mobile data traffic could grow 56% compared with 35% in the US. … With favorable policies and government backing, China’s technology companies are likely to be better placed to take advantage of these data trends,” the firm said. Robotics and automation are another key theme to watch over the next decade as developments could jeopardize up to 50% of worldwide jobs by 2035.

As everything shifts online and becomes data-fied, this “ubiquitous connectivity” will alter society’s fabric, particularly in cities. Bank of America called the smart city theme “one of the biggest investible universes” as technology and data transform everything from urban transportation to city security to temperature control in office buildings.

“Sensor and [internet of things] deployment is mostly in cities, opening major opportunities for semiconductor, sensor and software suppliers. For example, the expansion of the London Ultra Low Emission Zone for polluting vehicles will require cameras/sensors and software services,” the firm cited as one industry set to benefit from smart cities.

Bank of America predicts that the space industry could be worth $1 trillion by 2030, with aerospace and defense companies set to reap the rewards.

“New technology (reusable rockets), innovative speedy private companies, miniaturisation of electronics and new services (internet from space, space tourism) could revolutionize space like never before,” the firm said.

Declining costs and greater functionality will lead to an increased interest in space from individuals, countries and companies. “The next decade is set to be the most exciting ever for space,” Bank of America said.

— CNBC’s Michael Bloom contributed reporting.