Looking for investment opportunities in a low growth environment can be very challenging as Australian companies are not experiencing the same levels of growth as before. However, there are still opportunities around – you just have to look a little harder. Here we have outlined a starting point on where you need to look in order to discover trading opportunities in a low growth environment:
Stocks outside of the large caps: Investment opportunities in a low growth environment are no longer found in large cap companies. In this economic environment, large cap companies may find expansion challenging. Using the financial sector as an example, more growth could potentially be found in regional financial companies compared to the big four.
Consumer Staples: These companies are in the defensive sector and are favourable in a low growth environment as they are less economically sensitive. Consumers will always need to buy groceries and need utilities.
Actively Manage your Portfolio: In a low growth environment, it is especially important to regularly evaluate your portfolio. You should consider continually add any undervalued companies.
Emerging Markets ETFs: The Australian economy is experiencing low growth and a low interest rate environment. Yet there are other countries in the world that are still experiencing growth. Emerging markets such as China, India and Brazil are experiencing growth. You can get exposure to these countries without having to buy international stocks by buying ETFs which cover the emerging markets.
Technology: Companies need to be more efficient if they are to grow or make money in a slow growth environment. Look for companies that are able to cut costs and utilize technology to make their processes more efficient. Companies need to change their processes and reduce operating costs to stay competitive.
Acquisitions: Look for companies that make smart acquisitions. In a low growth rate economy, firms can grow further than they can on their own through acquisitions. Investors can look for firms which have a past record of acquiring firms successfully.
Look for Growing Industries: Be selective in your selection of companies and invest in high quality companies that have genuine growth businesses. Look for companies in growing sectors – we wrote about this on the attached link. https://fairmontequities.com/growing-sectors-to-invest-in/
For example, areas in payment systems will continue to grow despite this low growth economy. We are moving to a low or no cash society. This means that companies specialising in payment systems capitalising on consumers wanting this convenience will see continued and higher earnings. Also, companies targeting products for the aging population will continue to grow. This will affect healthcare stocks as the aging population will need buy personalised medicine.
Look for companies targeting consumers in China: The growth in China is still strong. We have seen GDP growth figures of 6.9% in the first and second quarters of 2017. This beat market expectations. Whilst growth has slowed in the US and Australian markets, China is still going strong. This means that investors should look to capitalise on a market where consumers are still spending. Australian brands have a good reputation in China as they are seen to be of higher standard than the local product.
Lauren Hua is a private client adviser at Fairmont Equities.
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