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Securities Mentioned in This Video:
Reckitt Benckiser Group (RB.)
Unilever (ULVR)
HJ Heinz Company (HNZ)
Kimberly-Clarke Corporation (KMB)
PepsiCo (PEP)
Video Transcript:
Holly Cook: At the Morningstar Investment Conference, I caught up with Jan Luthman; he is co-head of UK Equities at Liontrust and I asked him what he thought was the most exciting theme for long-term investors. Let's see what he had to say?
Jan Luthman: For me, one of the most exciting themes is the realignment of currencies and wages in the world, because human nature is that we don't like wage cuts, we love wage increases, but we don't like cuts. And that suggests to us that this realignment process will take place via different routes in different parts of the world.
I think in this part of the world, which is a high-cost economy, we will see not wage cuts, we've tried that in Greece and it doesn't work, what we'll see instead is currency depreciation.
Conversely, in low-cost areas of the world, I think, what we'll see is not currency realignment upwards, what we'll see is accelerated wage increases. Our view is that that will have a very powerful impact on consumer spending. Because not only will consumers be richer and have increased spending power, they will have increased predisposition to spend. They will feel richer because of those accelerated wage rises.
In addition, what we are also seeing in rapidly developing economies like China, is a significant expansion of their social welfare and healthcare programs with the specific aim of reducing the Chinese populaces’ perceived need to save.
So, this combination of rapidly rising wages over the next five years combined with a reduced need to spend, we think will be very powerful drivers of consumer spending growth in that part of the world. It will make a very positive environment for Western consumer goods companies to operate in that part of the world. Companies like Reckitt Benckiser, like Unilever, and then across the pond companies like Heinz, like Kimberly-Clark, like Pepsi, for example. All of these will enjoy an environment of a very strong sustained consumer spending part in China. It makes sense in our view as investors to invest in that kind of environment.
Cook: So, China, for example, as you mentioned, is there currency risk there or perhaps actually a positive affect that it could have on the portfolio?
Luthman: In our view it's going to be a positive. In the sense, it will be manipulating our currency downwards relative to theirs, so to that extent it's a positive impact because the earnings that take place in China will be in the Chinese currency - the Renminbi - and as our currency depreciates relative to theirs, so those earnings on translation back into sterling will be increased.
In a sense it's almost like a quadruple positive whammy here: rising consumer incomes, reducing need to save, the possibility that price of our goods from the West will ease as our currency deteriorates and also the fact that those earnings that take place in China will be enhanced by the devaluation of our currency.
Cook: And that's just one of his favorite themes. To find out what his others two favorite sectors are, read our article and the related links below.
Thanks for watching.
