Global Trends for Investors

Wednesday, June 17, 2015

The desire for instant gratification is being heightened by modern technology providing immediate access to daily planetary happenings. However, turning down the noise surrounding investment markets is essential for successful investing which relies on a balancing act of the longer term.

Here’s a look at some longer term themes currently influencing medium term investment markets.

1. Aging and slowing populations, in general, globally are now starting to have an impact. Thanks to medical advances people are living longer healthier lives and reduced fertility rates are leading to lower population growth overall.  Of course, the impact is more significant in some countries than others.  In general this means slowing labour force growth which in turn weighs on potential economic growth; increasing pressure on government budgets for health and pension provision.  At the industry level it will support growth in several industries including healthcare and leisure.

2. The surge in household debt relative to incomes has slowed post GFC with households now running higher savings rates. This likely means slower growth in consumer spending, lower interest rates and central banks having to ease more to achieve a desired stimulus.  

3. The surge in the supply of commodities in lagged response to last decade’s commodity price boom is now combining with somewhat slower growth in China and emerging countries to result in a downtrend in commodity prices. This will act as a constraint on inflation and on growth in commodity producing countries (eg, South America, Russia, Australia) but benefit commodity user regions (the US, Asia, Europe and Japan).

4. Technological innovation is having an ever increasing impact -  75% of the world’s population has access to a mobile phone and by 2030,  50% will access the internet. The work environment is being revolutionised enabling companies to increasingly locate parts of their operation to wherever costs are lowest (sometimes internationally) and increasingly to automate. The intensified focus on labour saving is good for productivity and profit margins but may constrain wages and consumer spending.  This is another reason for inflation to stay low and profit margins to remain high. It also holds potential positive for growth

5. Globalisation is set to continue as companies, under pressure to cut costs, look to emerging countries with lower wages and high education levels to feed into their production chains. While this was once limited to manufacturing, it has now shifted into services e.g. call centres, medicine, finance. This is positive for companies that can shift functions across boundaries and will help keep inflation down.

6. Awareness of the impact on the environment is continuing to grow. This will favour companies that adhere to high environmental, social and governance standards.

7. Renewable energy sources are growing and reducing in cost e.g. solar energy, electric cars. This has negative implications for oil and coal and will accentuate the commodity price downtrend.

8.  Geopolitical tensions have the power to disrupt investment markets at times.

Most of these trends constrain growth, inflation and investor returns as compared to the heady days pre GFC.  However, technological advances remain positive for profits and the winners include health care, leisure and multinationals.

For a balanced view to your investment strategy we recommend you consult your financial planner. 

This document was prepared without taking into account any person’s particular objectives, financial situation or needs. It is not guaranteed as accurate or complete and should not be relied upon as such.  Maher Digby Securities does not accept any responsibility for the opinions, comments, forward looking statements, and analysis contained in this document, all of which are intended to be of a general nature. Investors should, before acting on this information, consider the appropriateness of this information having regard to their personal objectives, financial situation or needs. We recommend consulting a financial advisor.

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