You can add ‘low commodity prices’ in there as well which, assuming they are likely to remain low for the next few quarters at least, are going to be a bonus for consumers themselves as well as food and staples companies.
So what?
Looking into the detail of where the consumer growth will come from means splitting out consumer discretionary and consumer staples. The latter saw very similar sentiment in this year’s survey compared to last year’s whereas the only sector that showed increased sentiment among analysts – and therefore company management – is consumer discretionary.
“Investor attention would be well placed here,” Sayers suggests. “Retail, luxury, leisure and, to some extent media should benefit from higher consumer spending driven by a combination of rising employment, increasing wage growth and a resilient housing market.”
Generating income is another facet that will remain a central theme for investors, as consumer discretionary continues to benefit from the rising numbers making up the emerging market middle class spending more.
When defensives such as consumer staples are a positive investment it is often an indication of relative outperformance during recessionary periods or a relative outperformance in late-cycle periods. Given we are not in a recessionary period, Sayers adds that one of the clear findings of the research is that we are in a maturing cycle.
Says Sayers: “The emerging market theme is a secular, multi-year theme,” Sayers explains, “whereas consumer discretionary in developed markets is more about cyclical recovery.
“If you believe in the lower for longer story for interest rates, then staples exhibit important bond-like characteristics, indicating more predictable cashflows, dividend and confidence in both.”
Spoiler alert: the next page includes the ‘but on the other hand…’ paragraph.
