Cashing in on global macrotrends.
Investors that ride with global trends find excellent opportunities, while those that run against to them tend to find that the going gets very difficult. Identifying trends and identifying which companies will prevail in those trends is vital to long-term investor success. In this article, we’ll take a look at three trends that may impact your investments.
Global macro trends have a strong influence on economies, people, the environment and society. Identifying and rolling with these trends is important to the future of companies, governments, families and investors. These trends are not your hot idea of the month, but rather changes that span multiple decades.
Many readers probably remember John Naisbitt’s books on mega-trends. In the book titled MegaTrends 2000 (1990), Naisbitt says he foresees a booming global economy, with the “Pacific Rim” of Tokyo, Seoul, Shanghai, Taipei, Hong Kong and Singapore rivaling a single-market “Europe 1992.”
He also forecast that socialized industry and government welfare services would be largely replaced by private enterprise. The author envisioned epic developments and dangers in biochemical science–test-tube chickens, clones of endangered species and killer-disease vaccines. Investors who understood and followed these trends were able to take advantage of the companies that participated in the sector growth the trends spawned.
On Oct. 3, 2006, Naisbitt released another book titled Mind Set!, which describes how he identified all the trends described in his previous books. Naisbitt suggests that 11 mindsets helped him to identify the trends he forecasted in Megatrends 2000. These included:
–“Don’t add unless you subtract.”
–“Focus on the score of the game.”
–“Understand how powerful it is not to have to be right.”
–“Don’t get so far ahead of the parade that they don’t know you are in it.”
According to Naisbitt, investors must look for trends by considering many different factors. It helps to step away from your day-to-day activities and look at the big picture from different perspectives. It also helps to read a variety of materials to seek additional input.
One way to perform this analysis is to use opportunity-threat analysis. This is a technique commonly used by strategic planners to help develop long-term plans. Opportunity is where you identify the investment ideas that might be available from the trend. Threats are the risks that might come about as a result of the trend.
To help investors understand how to use macro trends, let’s examine an article recently published for the The McKinsey Quarterly on “Ten Trends For The Coming Years.” These trends look forward for more than 10 years, and help to demonstrate how to identify strategic investment opportunities. Only three of the 10 mentioned trends will be examined for this article.
Trend: The consumer landscape will change and expand significantly. Almost a billion new consumers will enter the global marketplace in the next decade as economic growth in emerging markets pushes them beyond the threshold level of $5,000 in annual household income–a point when people generally begin to spend on discretionary goods, according to the “Ten Trends.” By 2015 consumers’ spending power in emerging economies could nearly match the spending power of Western Europe. It is estimated that 100 million Chinese households will achieve European income levels by 2020. Furthermore, the Hispanic population in the United States will have spending power equal to that of 60% of all Chinese consumers.
Opportunity: Look for consumer and luxury goods companies with a strong presence in Asia and other developing countries that are achieving economic success. Companies that are able to identify and target the evolving consumer market niches are likely to prevail. Also look for transportation companies that move the raw materials and finished goods at low cost and operate easily throughout the world.
Threat: Companies with local experience based in these emerging countries may have greater insight into local preferences and customs, which is a strategic advantage. Multinational companies may face a backlash from consumers in these emerging countries. Governments in these emerging markets may offer preferences to local companies to allow them to compete unfairly in the local markets.
Assessment: It may become important to monitor the actions of governments and local response to multinational companies as they try to penetrate rapidly growing local economies. Also watch how publicly traded companies enter these markets, and pay attention to how they address the local preferences and customs.