Delegates at the Fiduciary Investors Symposium, Balgownie Estate, Yarra Glen, Victoria will take part in a day long debate across multiple presentations on November 17 as to where opportunities lie in a valuation stretched world and how they can persuade their investment committees to accept changes to asset allocation to capture these. Olga Bitel, economist at William Blair, will be one of the speakers at the conference. Here are her current views on opportunities for investors.
Today, as usual, the financial markets are pre-occupied with assessing economic growth prospects. Too often, over-emphasized headlines and superficial noise mix together with fast-flowing copious quantities of information, making it challenging to identify real developments that matter.
The challenge is worth undertaking, as underlying economic and market influences are more nuanced, and more informative for medium-term outlook on global growth and our opportunities as investors, to participate in this growth. Beyond obsessive pre-occupation with whether the US Federal Reserve will raise rates by 25 basis points in September or December or never, we see several reasons to be optimistic about the near-to-medium terms growth prospects.
Emerging Markets – and China! – are not dead. For the past couple of years, emerging markets have underperformed developed markets in US dollar terms. This year, China dominated the negative headlines and was the main culprit behind the pronounced sell-off, which accelerated in July and continued in August. While China’s policymakers’ communication with the financial markets continues to evolve, outlook for China’s growth remains central to global growth.
Today, industry and construction, and the accompanying high frequency indicators of industrial activity, are barely growing: year-on-year revenue growth of industrial companies decelerated to 0.8 per cent in August. Consumption and services, which account for over 50 per cent of China’s GDP, remain the bright spot in China’s economy. Total retail sales are expanding at double digit pace, while E-commerce has been growing at 40 per cent + per annum for the past 6 years and today accounts for nearly 10 per cent of the entire economy. It may have disrupted established retailers and foreign brands operating in China, but it has been a boon for Chinese consumers. We see China’s consumption resilience exploding box office receipts, Korean cosmetics companies and Japanese retailers, who benefit from rapidly growing number of Chinese tourists.
Emerging Markets’ corporates maybe be about to see improving earnings, especially among manufacturers and non-commodities exporters. Big competitiveness gains from strong US dollar, together with robust final demand (US and Euro Area consumer) and more abundant US dollar liquidity (from larger US trade deficit) have improved the outlook for many EM corporates.
Technology – not monetary policy or lack of demand – together with deregulation and globalization, are behind ever lower global inflation. Technology is more than the latest portable gadget. It enables companies to produce goods, extract commodities, or deliver services today at a fraction of what it cost yesterday. It may be highly disruptive, but technological advancement is good news for innovative companies and for consumers. It enables real economic growth to coexist together with pronounced disinflation. In the months and years to come, we may have to get better at disentangling the impact of lower prices from actual growth, but this trend is here to stay.
There are still places left at the Fiduciary Investors Symposium for asset owner representatives. Registration for the conference, which runs from November 16 to November 18 can be made at the following address www.fiduciaryinvestors.com.au
