Let me first emphasize that we are fundamentally bottom-up investors. We focus on individual companies first. But, of course, we do like to sail with a good tailwind.
There is certainly a lot of debate about the economic picture in the regions I cover – Asia and Latin America. There’s no doubt that growth has slowed down, but the important thing for me is that the fundamental drivers of growth are still there.
What are these key growth drivers? Here are a few that we look at when examining the bigger picture:
- Fiscal situation
- Commodities demand
- Consumption upgrade
Demographics There are very favourable demographic structures in the emerging Asian and Latin American nations. These countries have very young populations. A young population not only means a large, up-and-coming young workforce participating in the economy, but also means low pension and medical expenditures for both companies and governments. This type of demographic structure also means increasing consumption powers because more people are in the income-earning age bracket.
Fiscal situation The fiscal situation for many governments in these economies is totally different than it was ten or 15 years ago. One important ratio we look at is government debt-to-GDP. The rates for those countries range from roughly 30%- 40% – very comfortable compared to nearly 100% – even over 100% – in many developed economies. So, many Asian and Latin American governments do have the dry powder today to provide stimulus packages to build infrastructure.
Commodities demand This is a common theme, but one that is very real. Many of the emerging economies in these regions have increased demand for commodities due to the fact that they are developing infrastructure to accommodate future growth. As I noted above, stimulus packages have made new infrastructure a reality and this led to increased demand for the resources required for building and development.
Consumption upgrade Another element to consider in developing countries is what I call the “consumption upgrade.” In many cases there is a greater workforce participating in the economy. And with increased income, people are going to spend their money on items they haven’t spent on before or things they feel they haven’t spent enough on in the past. This could include buying a car from a dealership, purchasing insurance products to protect their families or simply eating in restaurants more often. All spending that benefits an economy. The companies we own in Trimark Global Fundamental Equity Fund share one simple, but powerful theme: they are well-positioned to benefit from what may be a decades-long increase in regional demand for capital goods, commodities, financial services and consumer products.
I believe that these factors, among others, will keep driving growth in these economies.