Investors' worries over global economic growth have cast a cloud over equity markets in recent month...
Investors' worries over global economic growth have cast a cloud over equity markets in recent months. But beneath a veneer of nervous investors and sluggish economic activity, hides a fast changing world of companies determined to improve profits. To their benefit, many businesses have realised they cannot afford to sit still and instead are carrying out far-reaching changes.
Corporate Germany is a case in point. The country's dull economic outlook and gloomy headline news is not exactly what you could call inviting. Look below the surface though and you will discover a number of businesses that are working hard to combat the weak domestic economy. Many companies have restructured their operations in an attempt to cut costs, such as Deutsche Bank and media network ProSiebenSat 1.
German chancellor Gerhard Schroeder's surprise decision to call elections 12 months ahead of schedule also heralds change. Reform is urgently needed in a country where some 12.6% of the workforce is jobless. There is a growing realisation that structural reform is moving to the centre of Germany's political agenda and it is likely to form the core of both political parties' - the SPD and CDU - election programmes this summer.
Faced with a lacklustre economy, Japanese companies like their German counterparts have carried out an extensive programme of restructuring and cultural change, which has resulted in robust cash generation and profit growth. Equity valuations in Japan are low by historic standards and in relation to trading fundamentals. We particularly favour companies such as Japan Tobacco and Toyota, which offer strong cash positions and the potential to return surplus capital to shareholders via share buybacks or dividends.
With economic powerhouse China expected to pursue its path of exponential growth, we maintain a long-term confidence in raw materials, such as iron ore and copper. India's huge potential for economic expansion and the impact its growth will have on businesses across the globe should not be overlooked either. We predict both China and India will create millions of 'brand' hungry consumers which, in turn, will substantially boost the retail sector. This explains our investment in US sportswear manufacturers, such as Russell Athletic and Reebok International that, in our opinion, are well positioned to benefit from this enormous opportunity. Chinese companies that are worth investing in are finally making it onto our radar screen. Until recently, investing directly in China was not a possibility but this is gradually changing. With the Shanghai stockmarket at a six-year low, some Chinese equities today look attractively valued.
Although we are underweight the US, mainly because of the market's relatively high valuations, it is still possible to find exciting companies there.
Japanese equities on low valuations but US market expensive.
China growth story reason to be long raw materials.
Brand companies are growing in demand in India and China.
US market is expensive.
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