06/2013-
Since leaving my world of investment banking and stockbroking 4 years ago to devote myself to philanthrophy, I have travelled the world extensively – right now, I have covered close to 60 countries or about one-third of 196 countries in the world.
Since leaving my world of investment banking and stockbroking 4 years ago to devote myself to philanthrophy, I have travelled the world extensively – right now, I have covered close to 60 countries or about one-third of 196 countries in the world.
As I travel from one culture to another, one continent to another, it is quite apparent that the world is changing much faster than what it did in the 1990s, when I first graduated and spent almost 9 months backpacking around the world.
The great thing about travelling now is that I no longer need to worry about finances as compared to when I first graduated. The years of putting my money to work, investing in the right assets at the right time yield me steady free cashflows for this purpose and for re-investments into new asset classes, new megatrends and new geographical places.
Given the ineluctable advancements of megatrends, it would seem investing now would be the best tip. However, one of my key investment philosophy is that while time and tide waits for no one, one needs to know when to get in into the tide.
An astute investor has to understand that while megatrends may hold sway for a decade or two, positioning into winners can be a tricky process – traditional investing models should incorporate higher risk premiums such as higher capitalization rates or shorter future cashflows to determine fair values as demand variables can be huge swing factors.
Take for instance the Dot.com boom in 2000 – investors who had bought into the boom benefitted, but investors who bought at the top of the boom were ruined. Essentially, smart investors have to realize that megatrends normally go through a life cycle – nobody notices its incubation, somebody starts to market and propound it and soon everybody jumps on it. Then it crashes and everybody condemn it.
However, it is really after a huge crash that megatrend investing tend to enjoy a longer period of steadier and sustainable growth. For example, dot.com companies like Amazon and Yahoo still exist and their profitability have become steadier and more sustainable. Price acquisitions in the dot.com space no longer hit stratospheric levels although investors can still lose money on pricey IPO valuations of Facebook or holding on to LinkedIn shares which have a PER of 500x!
I think that the megatrends that will benefit investors in the current decade would be :-
Investing in places with demographic increases resulting in rapid urbanisation
The world's population has more than doubled in the past 40 years to almost 6.5 billion. According to the United Nations, this is likely to increase to 9 billion in the next 40 years.
This has driven urbanization in many places like China, India, Africa and the American sub-continent.
50 years ago, only a third of the world's population lived in cities. Right now, the figure is more than 50% and is expected to rise to two-thirds by 2030.
Take for instance China – it currently has more than 150 cities with more than 3 million people compared to less than half a decade ago. Increased urbanization will drive increased needs for housing, transport, food and healthcare.
Thus, with the Shanghai Composite Index hovering at 2,200 points, just 800 points above the 10-year low, but 3,800 points way below the 10-year high, the current level does present good accumulation especially when valuations are going at PER of 10x and EPS growth is projected at an average of 15% pa for the next 3 years.
Growing Middle Class in Developing countries will drive earnings and stock prices of winning stocks
Developing countries will grow faster than Developed countries. This will lead to a transfer of wealth to developing countries which will themselves, evolve new clusters of middle class, which is expected to almost triple to 5.8 billion in 2033 from 2 billion presently.
In this regard, Asia's share of global spending is expected to surge from 26% today to 70% by 2033. This trend has great implications on corporate earnings and stock prices.
Take for instance, Unilever, the seller of the ubiquitous Lipton tea, Ben & Jerry's ice cream and Dove shampoo – its listed Indonsian subsidiary took 80 years to chalk up a turnover of Euro 1 billion, but only 4 years to double that turnover to Euro 2 billion on the back of the strong Indonesian economy which has grown by a compounded 6% pa for the past 6 years!
In turn, the Indonesian middle class has more than double to 100 million whose demand for Unilever products from milk powder to tea, has driven Unilever Indonesia share price up from RP5,700 to RP30,000 presently in the past 5 years. This more than 400% increase in share price gains does not include dividends and comes at a very low risk premium compare to trading any small-cap stocks.
Dancing to the African samba especially Sierra Leone
Of all the African countries that I have been to, Sierra Leone on the Western Coast catches my eyes.
This 71,740 sq km country (about 101x bigger than our red-dot Singapore) is rapidly rebuilding after the decade-long civil war ended in 2002 that displaced more than 2 million. It's stable government, in its second-term, is spending heavily on infrastructure and luring investments from mining companies. Sierra Leone is rich in diamonds, gold, iron-ore and minerals. Its US$3 billion economy, which grew 21.3% last year, is expected to grow by 15% in 2015 and an average of 13% pa for the next 3 years. This growth is backed by the commencement of iron-ore and diamonds exports and extensive construction, including the expansion of the current airport at Freetown, the country's capital city.
Not surprisingly, the early birds like UK-listed London Mining and African Minerals Inc, have begun iron-ore exports in Sierra Leone. Koidu Holdings SA and a few major diamond companies have started mining operations too.
In the past decade of stability after the civil war, Sierra Leone has adopted numerous reforms like improved access to credit information by establishing a public credit registry, guaranteeing borrowers' rights to inspecting their personal data. Land registering for property is not computerized at the Ministry of Lands, Country Planning and the Environmnt.
On the back of these improvements, the yields on its 3-month treasury bills have tumbled almost 130 bp to a record 6.42% at the last auction just last month! This yield is down from a whopping 19.1% at end-2012 and is almost equivalent to some of the Chinese developers dim sum bond yields.
Government 1-year bond yields have also tumbled commensurately – they have fallen from 14% in 2012 to 11.4% presently.
Falling interest rates would boost greater lending and spur greater economic growth. Couple with lower government debt which is expected to go down to 40% from 44% in 2012, inflation is expected to slow to 9% from 12% last year, according to the IMF.
These improvements mirror what I have experienced in my investments in Mongolia – not surprisingly, they have translated into the rising leone, its currency which is the fifth-best performer in Africa this year. The leone presently trades at 4,323 to the US$.
Amongst the African economies like Rwanda, Burkina Faso, Ghana, Burundi, Senegal, Angola, Mozambique, Cote d'Ivoire and Nigeria that have improved substantially in the past decade, I would say that Sierra Leone holds the best promise.
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