Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 206

3 implications of retail disruption for emerging markets

“Technological advancement, measured by the long-term change in the relative price of investment goods, together with the initial exposure to routinization, have been the largest contributors to the decline in labor income shares in advanced economies.” – IMF World Economic Outlook, April 2017.

Whilst much of the focus for an emerging markets fund manager is on conditions and developments in the emerging world, we must not lose sight of how changes in advanced economies create opportunities and risks for our investments. The rapid rate of change in the US retail industry has both industry-specific and global implications.

Retail competition at peak levels

Calendar 2017 is proving to be the most brutal year for the retail industry since 2008. Credit Suisse estimates that there will be 8,600 store closings this year, compared to the 2008 historical peak of 6,200. High-profile bankruptcies and mass job layoffs have dominated the sector’s news, yet the US economy remains relatively healthy. US retail sales (ex-food, auto dealers, building materials and gas stations) rose 3.4% in the year to March 2017, compared with an overall 3.4% fall in 2008. Consumer confidence is at its highest in 16 years. The problem is not one of demand, but of competition.

Amazon stood out in the stream of negative news for competitors, announcing plans to hire 30,000 part-time workers at the same time as reporting first-quarter revenues of US$35.7 billion, up 23% on a year earlier. The online disruption in non-perishable goods, in terms of jobs, companies and properties, is severe, and this pattern is likely to spread to other industries in both the US and other countries.

Three important implications for investors in emerging markets

The first is to recognise the opportunity that online operators have in emerging markets. Three of the world’s five largest internet companies are Chinese, with Tencent and Alibaba in particular going from strength to strength. We hold significant exposure to both.

In addition, we have holdings in Naver in Korea and Naspers in South Africa (which, as well as a stake in Tencent, has significant internet assets in other emerging markets, notably India). Where we hold retail-type companies, we have ensured either that they are predominantly in the safer perishables sector (such as Eurocash in Poland, and Lenta and Magnit in Russia) or have strong online presence (such as M-Video in Russia, and Haier Electronics in China, both of which specialise in logistics and delivery of electrical and electronic goods).

The second is to look at the technologies that support the online world. We have holdings in Samsung Electronics, SK Hynix and Taiwan Semiconductor, all of which have benefited from the significant demand for memory and processors in servers. We also own Lenovo in China, which took over IBM’s x86 server business, and Reliance Industries which, as well as its energy and petrochemical assets, owns and operates India’s first 4G telecom network, with mobile internet speeds of double its nearest competitor. We see mobile internet in India as one of the most exciting opportunities in the emerging world, and Reliance as a key beneficiary.

The third impact, which is more global in nature, is to recognise (as per the IMF quote above) that technology remains a major global deflationary force. If developed market growth is to be both slower and less inflationary than in the pre-2008 period, emerging markets, which variously offer higher growth rates and higher yields, are likely to be the recipients of significant capital flows from the developed world.

 

James Syme is a Senior Fund Manager at J O Hambro Capital Management, a wholly-owned subsidiary of BT Investment Management. This article refers to holdings in the BT Global Emerging Markets Opportunities Fund (Wholesale). This article is general information and does not consider the circumstances of any individual.

 


 

Leave a Comment:

     
banner

Most viewed in recent weeks

Check eligibility for the Commonwealth Seniors Health Card

Eligibility for the Commonwealth Seniors Health Card has no asset test and a relatively high income test. It's worth checking eligibility and the benefits of qualifying to save on the cost of medications.

Start the year right with the 2022 Retiree Checklist

This is our annual checklist of what retirees need to be aware of in 2022. It is a long list of 25 items and not everything will apply to your situation. Run your eye over the benefits and entitlements.

At 98-years-old, Charlie Munger still delivers the one-liners

The Warren Buffett/Charlie Munger partnership is the stuff of legends, but even Charlie admits it is coming to an end ("I'm nearly dead"). He is one of the few people in investing prepared to say what he thinks.

Should I pay off the mortgage or top up my superannuation?

Depending on personal circumstances, it may be time to rethink the bias to paying down housing debt over wealth accumulation in super. Do the sums and ask these four questions to plan for your future.

Part 2: Hamish Douglass on not swinging for the fences

Markets don't seem normal, but Magellan is criticised for its caution. Higher interest rates to control inflation could create a recession and some of today's investing will turn out a mass delusion of modern history.

Will 2022 be the year for quality companies?

It is easy to feel like an investing genius over the last 10 years, with most asset classes making wonderful gains. But if there's a setback, companies like Reece, ARB, Cochlear, REA Group and CSL will recover best.

Latest Updates

Investment strategies

Despite the focus on ETFs, unlisted funds still dominate

ETFs gain the headlines as issuers are skilled at promoting their growth and new funds. Yet ETFs are tiny compared with managed funds, which advisers prefer on platforms. Which will be the long-term winner?

Latest from Morningstar

10 lessons from Larry Fink's 2022 Outlook

At a 2022 Outlook event, the influential BlackRock (largest fund manager in the world) CEO spoke about consumer behaviour and its impact on prices, the pandemic, ESG trends and likely equity returns for 2022.

Strategy

If rising inequality leads to social unrest, we all suffer

Feeling financially stressed? The entry level for the world's richest 1% is $1.5 million including the family home. If this is not enough to fund a ‘comfortable’ lifestyle, consider that 99% of people have less.

Shares

Sharemarket falls: seven things for investors to consider

Stockmarkets have fallen in recent weeks on the back of worries about inflation, monetary tightening, Omicron disruption and the risk of a Russian invasion of Ukraine. It’s too early to say markets have bottomed.

Retirement

The importance of retirement 'conditions of release'

Retirement 'conditions of release' vary by age in stages before 60, over 60 and over 65. Super tax benefits may accrue if gainful employment ceases after age 60 but a person may still return to the workforce.

Investment strategies

We need to limit retail investor harm from CFDs

A Contract for Difference (CFD) is a highly-leveraged investment used for speculative and gambling activities by retail investors without the knowledge to take such risks. ASIC is struggling to control the product.

Superannuation

It's time to assess your super fund’s carbon footprint

We face a huge economic transformation that is not a priority for politicians. Yet a typical super portfolio emits about 28 tonnes of CO2 per annum through its equities ownership, more than the average household.

Sponsors

Alliances

© 2022 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. Any general advice or ‘regulated financial advice’ under New Zealand law has been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892) and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. For more information refer to our Financial Services Guide (AU) and Financial Advice Provider Disclosure Statement (NZ). You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.

Website Development by Master Publisher.