25th October 2011
As news reports tell us, power is shifting quietly to the emerging markets of the world, with these representing alternative profit-seeking opportunities and the growth engine of the world as we witness western economies crumble.
So we thought it about time Mindful Money asked:
Which dominant stocks in various sectors with strong emerging market connections should we be considering?
After all, faced with the prospect of stagnation in the west, companies are plunging into the high-growth economies of Asia, and even, increasingly, Africa. Perhaps we can profit from this shifting growth dynamic – and add some worldwide flair to our investments.
BG Group (BG)
This stock is a popular choice among global fund managers. As reported today, high oil prices and continued growth in emerging markets helped BG Group lift pre-tax profits in the third quarter, says the Financial Times (paywall). The FTSE 100 oil and gas group produced stronger than expected results, with pre-tax profits of $1.86bn (£1.16bn), up 23% from the same period last year.
The company boasts unique positions in Brazil, and global markets which is "virtually impossible to replicate", according to Virginie Maisonneuve, Head of Global and International Equities at Schroders. It has achieved recent exploration success in Brazil's massive Santos basin, and is tipped for future success driven by developing economies. Gas, in particular, will benefit from efforts to mitigate climate change given its low carbon intensity relative to other conventional fuels.
Maisonneuve adds: "The role of the large emerging market economies should be a key consideration for all investors. Fifty per cent of global corporate growth – not to mention 98% of population growth – is now occurring outside the developed world. Global companies with a footprint in the bourgeoning economies of Asia and the emerging markets are poised to do well in the long term and this should, in our view, be reflected in any equity portfolio."
Louis Vuitton Moët Hennessy (LVMH)
Luxury giant Louis Vuitton Moët Hennessy reported third-quarter sales jumping 18%, an indication that high-end spenders shrugged off the market turbulence and economic uncertainty and continued to invest in designer goods, reports the Wall Street Journal. The group behind brands such as Louis Vuitton, Veuve Clicquot and Sephora said revenue rose to €6.01 billion from €5.11 billion a year earlier.
The success was boosted by the acquisition of Italian jeweller Bulgari, with growth coming from across all regions. Asian demand is particularly fuelling growth as the regions demographics include a growing middle class in countries such as China and India that are keen buyers of luxury brands.
US economic worries and the European financial crisis have hurt a variety of sectors, but companies such as IBM that sell hardware and software for data centres powering the Internet have shown resilience – particularly with strong support from emerging markets. In particular, IBM, the computer services giant, reported a rise in third quarter profits, reported City AM, helped by steady corporate spending and continued growth in emerging markets.
In a statement, Samuel J. Palmisano, IBM's chief executive, said growth markets such as India and China delivered "outstanding revenue performance" across software and services, climbing 19% last quarter.
Companies in the developed world are increasing their commitment to emerging markets at a faster rate than ever before, reports the Financial Times (paywall) and Unilever is among those setting the trend. The consumer goods company has proved its defensive qualities in face of European indecision. It also has good growth prospects in emerging markets, and recently created a new Africa division as part of its plan to increase emerging-market sales.
Unilever derives about 50% of sales from emerging markets, where it is generating high-single-digit volume growth. This should offset sluggish growth in more mature developed markets, so it is expected to continue expanding its global presence.
After nearly a decade of dominance by a Japanese-American duopoly, Toyota, the global car market predicts that Volkswagen will be the biggest selling manufacturer this year. According to analysts surveyed by Bloomberg, VW's sales will probably rise 13% to 8.1 million vehicles this year. Meanwhile, Toyota's sales will suffer a 9% drop to 7.27 million, and General Motors will manage only an 8% increase, to 7.55 million.