The U.S. has led global markets over the past decade and it continues to dominate the investment landscape. With its continuing economic strength, many investors see this dominance continuing.
This does however risk missing out on a range of opportunities across other global markets. Whether it’s growth, dividends, or simply fundamentally well-run companies, international markets offer a lot of potential. We consider three areas here:
Looking for growth? Invest alongside the Chinese consumer.
China’s vast middle class and increasingly wealthy upper middle class will continue to be among the top drivers of global growth.
In the past decade, China was busy building out the infrastructure of its economy and, as a result, drove global demand for commodities and all things industrial. It still maintains enormous influence on the industrial economy. But what’s more interesting are the evolving tastes of the Chinese consumer. Consumption in China has grown by at least 5% a year pretty consistently over the last 10 years. It is capital expenditure and exports that have been more volatile, hence the concerns around total GDP growth.
As the population gets wealthier, their priorities are changing. For example, infant nutrition, health and hygiene have become top priorities. That’s great for a company like Reckitt Benckiser, a Dutch British multinational that specializes in baby formula Enfamil and other personal care products. French food products powerhouse Danone is capitalizing on escalating demand for yogurt and other dairy foods in China. L’Oreal is another good example. The company has overcome a slowdown in Europe’s economies by tapping into the strong demand for cosmetics in China, India and other Asian markets. It has, in fact, managed to grow revenues by around 15% year over year. If you just think of L’Oreal as a France-based company, you are missing the point and the opportunity.
We can’t ignore Chinese consumers’ fascination with luxury brands like Gucci and Louis Vuitton. And in my opinion, the Europeans are the best at creating luxury brands. Kering is the French luxury goods company that owns Gucci as well as other celebrated names like Yves Saint Laurent, Alexander McQueen and Balenciaga. Focusing on the Asian consumer broadly and the Chinese consumer specifically, Kering grew top-line revenue by more than 25% in 2018 over the prior year.
In addition to following consumer demand patterns, we closely follow how corporate management is navigating these trends. Take LVMH Group, the holding company that owns, among many others, the iconic Louis Vuitton brand. The company has exhibited a highly disciplined management of its cash flow. It has redeployed much of its cash flow to expand its portfolio of brands while simultaneously pursuing a policy of growing the dividend initiated by the controlling Arnault family a dozen years ago.