Investing in the global megatrends (revisited)
In our seventh annual globalization report we find that global integration and the related megatrends potentially remain the strongest long-term performance drivers for many European companies in the production sectors (around 63.7% of market cap). This report includes 1) a quantitative analysis of the regional exposure of 800 European companies, 2) a qualitative analysis of key global megatrends and 3) a basket of European beneficiaries from global megatrends.
1) The quantitative analysis of regional sales data includes a wide range of overview lists sorted by regions, sectors and ranking lists (e.g. Top European companies with sales exposure to Asia, the Americas, outside of Europe) and an aggregation of regional sales by sectors and home country of the respective companies (see overview of all major lists on page 2).
2) This report gives an overview about global megatrends relevant to investors across sectors which mostly show long-term rising trends above global GDP growth. Analysed variables include world exports in detail, air and container port traffic, trade imbalances, de-industrialisation in developed market countries, fragmentation of production processes, FX reserves, FDI investments, tertiary education, R&D investments, patent filings, localization of products, urbanization, infrastructure investments, EM wage growth, car sales, luxury consumption, scarcity of commodities, changing nutrition habits, climate change, key technology trends, aging of the population and health care expenditure (see megatrends summary on pages 4-14, a more detailed analysis on pages 77-138 and a list of key megatrend reports on page 14). We analyse countries' comparative advantages from page 101 and the domination of developed market companies in most global sectors from page 89.
3) Our Globalisation basket (DBCGGL3P) includes companies which we expect to successfully leverage their globally relevant assets like brand names, patents and production know-how in an earnings enhancing way over the next years. Most basket companies have a strong global position, often in niche markets with high barriers to entry. Our previous basket of globalization beneficiaries has performed 55.8% since inception in 2009 compared with 16.8% of the Stoxx 600 and outperformed the Stoxx 600 by 39.0% (see page 44 for details). For example, our basket plays rising air traffic via aerospace companies and not via airlines because of the higher entry barriers and the long-term outperformance trend of Aerospace companies over airlines.
Eoin Treacy's view As the growth of the global consumer sector persists despite concerns over the Eurozone crisis, the USA's “fiscal cliff” and China's economic slowdown, investors are increasingly taking notice of the reasons for this outperformance
Concurrently, central bank intervention has created an arbitrage between low yielding bonds and high yielding equities. The most vivid representation of this is the increase in share buybacks funded by new debt. For the first time in 50 years, most equities indices yield more than their respective government bonds.
The companies we have dubbed Autonomies often represent the confluence of these powerful themes.
The Deutsche Bank team have put together an impressive array of statistics to support the composition of their globalisation basket which is comprised of companies they deem likely to benefit from a continued trend of globalisation. While a number of the companies in the report have been mentioned in Comment of the Day quite recently (BHP Billiton, Sanofi, Diageo etc.), I thought it might be instructive to review some of those which appear less often and have interesting chart patterns.
Andritz (2.51%) remains in a consistent uptrend and found support last week in the region of €40. A sustained move below that area would be required to question medium-term scope for continued upside.
Hugo Boss (3.72%) found support last week in the region of the 200-day MA and the upper side of the underlying trading range and a sustained move below €70 would be required to question medium-term scope for additional upside. In the luxury goods sector LVMH (2.19%) and Swatch (1.39%) are also testing the upper side of an 18-month consolidation.
Lanxess (1.32%) is testing the upper side of its 18-month range and a clear downward dynamic would be required for the €65 area to offer anything other than token resistance. Saipem (1.86%) has a similar pattern.
MTI Aero Engines Holdings (1.98%) continues to range above the 200-day MA and the underlying trading range. A sustained move below the trend mean would be required to begin to question medium-term potential for a successful upward break. Safran (2.23%) which is also in the aerospace sector has a similar pattern.
Qiagen has been trending consistently higher since finding support in October. A sustained move below €13 would be required to begin to question medium-term scope for continued upside.
Syngenta (2.37%) is rallying towards its 2008 peak and a sustained move below CHF320 would be required to question medium-term scope for continued upside.