Investing for a safer world
The attack in Paris has reminded everyone the world is under a lot of tension. In this article, we will look at the impact to the investment world.
There will be increasing investment in security, surveillance and defense at country level. Most countries are going to increase resources in police and army. This is definitely good news for stocks in related sectors. Increase in government spending in general can create jobs and simulate economy. Overall positive for stock market in the near term, say, 12 months. An example of an UK listed company with exposure to the defense sector is Smiths Group plc that rallied from 925.5 GBp on 16 November to 1036 GBp on 25 November.
Social media will be monitored closely by government agents, police and army. Can big data analysis predict or guess who, when and what? There will be demand for faster computation power to analyze zillion of messages that appear on all social media platforms. People want better encryption technology, smarter computer virus, and stronger anti-virus. Positive news for hardcore tech companies as strong technology will attract investment before operating profits. Computer Scientists will see more investment from Private Equity, Venture Capital and family offices who want to be there before Google, Facebook, Amazon and the BAT (Baidu, Alibaba and Tencent) from China. Google is trading at its year to date highest level at around USD 750 a share. Google beside dominating the search engine business and running YouTube, it is also one of the biggest venture capital in technology.
Central banks are likely to lean towards a more relax monetary policy to boost feel good factor and offset the fear factor. This leads to the thought of a weaker Euro versus USD. Good news for Europe based manufacturers like the German car manufacturers which are desperate to regain client and investor confidence after the misunderstanding in carbon emission figures. With national security as the priority, issues that money can solve such as the Greek bailout may have become a smaller problem. A weakening Euro has made the Greek bailout cheaper in USD terms. Currently, EURUSD at 1.06 level is pretty much the bottom in the past 12 months.
Strong security measures will be implemented at transportation facilities. Some may already notice the longer waiting time at airport custom. The passengers and the tax payers will eventually bear the increased cost to manage railway stations, airports, bus terminals. However, the number of people getting on the plane will continue to grow globally as there will be more people in developing world like China and India flying. Global money managers will still be interested to invest in airports. Both Heathrow and Gatwick are owned by unlisted companies. Heathrow Airport Holdings was the old British Airport Authority (BAA Plc) which was delisted in 2006.
Tourism and airlines are immediate victims and present different opportunities. Most global airlines are already suffering from increasing competitions especially regional budget airlines continue to grow in both geographical coverage and capacities. This trend is likely to continue and the end of the tunnel is not yet in sight. Hotel operators will suffer in the short term but the growth will come back. The recent Marriott Starwood merger will create the biggest hotel operator is like a reality show of the Hotel Tycoon board game.
Retail and consumer sectors will continue to invest more to grow online. The change of buying behavior from brick and mortar to internet continues and high street and shopping malls will continue to be dominated by global brands. There are signs of slowing growth in the luxury consumer segment. The Russian and Middle East petrol dollar has become history. Chinese are still shopping but in October, the domestic growth has slowed to below 7% for the first time since 2009. Retail and consumer may not be a segment that offers the easiest return. Along the food chain, property investment companies especially those invest in shopping malls. British Land Company Limited has gone up from 460 GBp in 2012 to 870 GBp level in October. It retreated to 830 GBp level in November.
Post offices and logistics companies, in general, have benefitted well from the growth in global e-commerce. More transactions on Amazon and Taobao mean more parcels to be delivered. Logistics companies will need to be more cautious about what they are shipping and where they are shipping to. The impact to logistics companies is probably milder than the impact to passenger carriers. Royal Mail reached 524 GBp in May and 525 GBp in June. At 480 GBp level currently at about 15 times profit to earnings ratio is already a rebound from 442 GBp on 2 November.
In the financial sector, more attention to anti-money laundering policy, tighter measure in client onboarding and source of fund. This means higher running cost and less friendly in account opening process especially for overseas individual or corporate accounts. Global banks have just spent a fortune to adapt to the post Lehman regulation regime and now they face increasing demand in compliance. This could be the last straw that breaks the camel bank for the banking sector. More laid off, lower profitability and lesser return for investors. Banking services are aligning themselves with government services rather than an exciting private sector.
