Low unemployment, rising wages and high consumer confidence should propel global consumption in 2018. Trend investors Jack Neele and Richard Speetjens are particularly interested in the advance of digital consumption and improving conditions for the emerging consumer. For strong brands, the market environment is becoming more challenging.
For 2018, the market is anticipating an improvement in the overall economy. As emerging markets are expected to benefit from improved global growth prospects, they are likely to continue their above-average growth. Consumer spending should benefit from low unemployment, higher wages and high consumer confidence. Markets will be driven by solid earnings growth.
The fundamental outlook for digital monster platforms remains particularly good. Strong platforms will continue to become stronger, as the network effect kicks in: the more people use the platform, the more valuable it becomes. A good example is the Chinese app WeChat, also called the ‘App For Everything’. It has many functions and platforms, including messaging, payment, a functionality to book doctor appointments or taxis, and much, much more. This way, it becomes part of people’s daily lives and it is very hard for smaller niche players to compete. The large platforms also have lots of capital at their disposal to invest in the further build-out of their competitive edge. We do keep an eye on developments in data privacy regulations, as they may affect platforms in general.
Digital payments are an expanding industry, where penetration is still low. The number of digital wallets, for example, is increasing rapidly. These are electronic devices that allow us to make electronic transactions, such as buying stuff on-line with a computer or using a smartphone to purchase something in a store. To be able to offer the full range of payment functionalities to their customers, every company needs to partner up with suppliers such as Square, Apple Pay, PayPal, and Android Pay.
Another growth trend is the mixture of payment functionality with a social element. Examples are free digital wallets that let you make and share payments with friends, split the taxi fare, and much more. This way, payments are becoming a way for platforms to close the loop, allowing them to move beyond the social function. This is one of the strengths of Chinese internet platforms: with their payment functionality they have much more data on clients than Western platforms. We expect the latter to follow the Chinese example.
For 2018 and beyond, we expect a lot from technological innovation in the gaming industry, especially in artificial intelligence, virtual & augmented reality, and the Internet of Things. Having visited a lot of tech companies, we expect these innovations to expand beyond gaming and lead to a range of new business opportunities.
In the TV market, we expect the advance of alternative digital streaming networks to continue. There has been a lot of merger & acquisitions activity, the latest coup being the takeover of major parts of 21st Century Fox by Walt Disney. Walt Disney aims to expand its offering and launch a streaming of its own to be able to compete more effectively with Netflix. Only the relevant networks will survive, especially in the US.
For the first time in years, we see large consumer companies, e.g. in the food industry, becoming more positive about economic growth prospects for emerging markets. As global economic recovery appears to persist, we expect above-average growth in emerging consumption for 2018.
For strong brands, the market environment is becoming more and more complex. As distribution and advertising are increasingly scattered across multiple channels, including social media and streaming networks, it is difficult to remain relevant in customers’ minds. The outsourcing of brand management to advertising agencies is declining as more and more companies take care of this themselves. As a result of this trend, the very strong brands have a distinct competitive edge.
As growth investors, we carefully monitor valuations, but they are not a dominant factor in our investment policy. We tend to keep invested as long as we remain confident about the fundamental competitive position of our investments. Valuations are high, but so is earnings growth. Normally when earnings growth is scarce, investors are willing to pay a premium for growth and consistency.
Another factor to watch is a potential rise in interest rates. This can impact investments in various ways. On one side of the spectrum, highly valued companies will have to be discounted against higher interest rates. On the other side, defensive companies may lose some of their shine for investors that were drawn to them in their search for yield. Still, increases in interest rates tend to happen when economic growth is accelerating, and this is good for consumer spending.
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