Three trends you should tap into for long-term in­vest­ment growth

Pretoria News Weekend - - OPINION -

IN­VESTORS are deal­ing with a tough eco­nomic and in­vest­ment en­vi­ron­ment, but at Mar­riott we have iden­ti­fied three macro trends play­ing out that hold sig­nif­i­cant op­por­tu­ni­ties.

1. RIS­ING IN­COMES IN THE DE­VEL­OP­ING WORLD

The gross do­mes­tic prod­uct growth of many ma­jor emerg­ing mar­kets is in­creas­ingly be­ing driven by house­hold spend­ing as they tran­si­tion from in­vest­men­tled to con­sump­tion-driven economies.

Over the next five years, it is an­tic­i­pated that in­cre­men­tal con­sump­tion growth in China and In­dia will equate to a mar­ket about the size of Ja­pan.

The an­nual con­sump­tion in emerg­ing mar­kets is ex­pected to reach $30 tril­lion (R416trln) by 2025, while the con­sum­ing class is ex­pected to rise from some two bil­lion to­day to nearly four bil­lion. Con­sumer-fac­ing multi­na­tion­als with meaningful foot­prints in the de­vel­op­ing world will there­fore ben­e­fit from what we be­lieve to be a sig­nif­i­cant growth op­por­tu­nity in the next decade.

2. AGE­ING POP­U­LA­TIONS IN THE DE­VEL­OPED WORLD

Peo­ple born in the Baby Boomer gen­er­a­tion – those born af­ter World War Two un­til the early 1960s – are reach­ing re­tire­ment age. By 2030, there will be a onethird in­crease in the num­ber of peo­ple over the age of 60 in the de­vel­oped world.

Baby Boomers are liv­ing longer – in some so­ci­eties, as much as three decades longer than peo­ple did a cen­tury ago. They have higher spend­ing power and own more as­sets than any other gen­er­a­tion.

In the United States, Boomers rep­re­sent 44% of the pop­u­la­tion, and in the next five years they’re pro­jected to hold 70% of US dis­pos­able in­come and buy 49% of to­tal con­sumer goods. Health­care spend­ing by Boomers is pro­jected to rise by $1.4trln, and they are cur­rently re­spon­si­ble for 80% of all lux­ury travel spend­ing.

Com­pa­nies that tar­get Boomers’ con­sump­tion habits will have a ready-made mar­ket for their goods and ser­vices.

3. TECH­NOL­OGY-EN­ABLED EF­FI­CIEN­CIES

Ad­vanc­ing tech­nol­ogy presents in­vestors with a ma­jor op­por­tu­nity. Busi­ness is ex­pected to ben­e­fit from long-term gains in ef­fi­ciency and pro­duc­tiv­ity, as well as con­nec­tiv­ity – termed the Fourth In­dus­trial Rev­o­lu­tion and the In­ter­net of Things.

It has been pre­dicted that by 2020 there will be over 26 bil­lion con­nected de­vices – more than three con­nected de­vices per per­son on the planet. Data pro­duc­tion will in­crease by about 44 times by 2020. Cur­rently, only 10% to 15% of com­pa­nies glob­ally use data ef­fi­ciently to op­ti­mise per­for­mance. The up­side po­ten­tial of this trend is sig­nif­i­cant.

Con­sid­er­ing these trends, Mar­riott has iden­ti­fied cer­tain stocks which we be­lieve in­vestors should buy and hold for the next decade. They fall into three gen­eral themes:

Com­pa­nies that own the world’s most sought-af­ter con­sumer brands.

P&G, Unilever, Reckitt Benckiser and Nestlé own brands such as Pam­pers, Dove, Det­tol and Nescafé. De­mand for these prod­ucts is likely to in­crease sub­stan­tially in the years ahead con­sid­er­ing the rapid growth of the con­sum­ing class.

World-lead­ing phar­ma­ceu­ti­cal com­pa­nies.

John­son & John­son, Pfizer, Glax­oSmithK­line and Sanofi are among the big­gest phar­ma­ceu­ti­cal com­pa­nies in the world and own a large per­cent­age of the globe’s es­sen­tial medicines, from vac­cines to can­cer treat­ments. As such, these four com­pa­nies are likely to be ma­jor ben­e­fi­cia­ries of age­ing pop­u­la­tions in the de­vel­oped world.

The world’s finest manufacturers.

Com­pa­nies such as GE and Honey­well are lead­ing the way when it comes to con­nect­ing equip­ment to the in­ter­net and analysing data to op­ti­mise per­for­mance. Not only are they top-qual­ity manufacturers, they are also lead­ing the dig­i­tal trend and are at the cut­ting edge of the Fourth In­dus­trial Rev­o­lu­tion.

GE re­cently hired 1 000 pro­gram­mers and boasts ex­cel­lent div­i­dend prospects. Honey­well is among the world’s largest providers of au­to­ma­tion and con­trol prod­ucts.

By tap­ping into the trends of a rapidly grow­ing con­sumer class in the de­vel­op­ing world, an age­ing de­vel­oped-world pop­u­la­tion and tech­nol­o­gyen­abled ef­fi­ciency and pro­duc­tiv­ity gains, in­vestors will be best po­si­tioned for fu­ture growth.

Con­sumer-fac­ing multi­na­tion­als with meaningful foot­prints in the de­vel­op­ing world will ben­e­fit from a sig­nif­i­cant growth op­por­tu­nity in the next decade.

Dug­gan Matthews is the chief in­vest­ment of­fi­cer at Mar­riott.

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