Growth and Representation
Comment of the Day

November 18 2011

Commentary by Eoin Treacy

Growth and Representation

Eoin Treacy's view Yesterday, I posted a number of charts describing the process of valuation contraction that has been evident on Wall Street over the last decade. I also posted a long-term chart of the spread between the S&P 500's dividend yield and the yield on US Treasuries which has returned to almost zero. Following an overnight rumination and taking into account some of the equities that yesterday's click through of the S&P 500 focused on, I began to think about the old Nifty 50.

The Nifty 50 was a term used to describe high-performing US growth stocks in the 1960s and 1970s. These were primarily focused on the growth of the US consumer and some were among the first to establish a presence in global markets. Some of the relevant shares have since been taken over, demerged, gone bankrupt or changed names. However, a large number still exist. I created a section in my Favourites for these companies and where one company has bought the original, I inserted that share instead. Here is a link to a PDF of the list.

Technology shares were perhaps the greatest domestic US growth shares over the last few decades. Emerging markets, particularly in Asia have become dominant drivers of growth and consumer demand over the last decade. Some of the original Nifty 50 companies such as McDonalds, Coca Cola, Unilever, Diageo, Johnson & Johnson, Yum Brands, IBM etc. have transitioned effectively from being dependent on their respective economies to representing the global consumer. Therefore rather than focusing on the Nifty 50 I thought it would be instructive to find companies with a reasonable presence in Asia and Latin America.

To do this I used Bloomberg to identify companies that derive at least 20% of their income from Asia and Latin America. A number of original Nifty 50 companies as well as a number of dividend aristocrats are present on this list of 108 shares which I suspect will be of interest to subscribers. I will perform a more detailed examination of these shares next week.

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