Yet again this week, market attention no doubt will be focused again on Europe, as well it should be. The developments in Italy in the coming months might well determine whether the euro zone survives in one piece — or whether the world economy enters a deep recession again for the second time since 2008.
Europe’s best days are behind it. The continent whose states once controlled globe-spanning empires and which once was the very definition of progress and modernity is now a society burdened by excessive debts and permanently weakened by aging demographics.
But regardless of what happens in Europe, there are several promising pockets of growth to be found. For all of the fears of Chinese growth slowing, the country still is swelling at a pace that would cause most finance ministers to salivate. A “slowdown” in China still means GDP growth of more than 9%.
Likewise, on the other side of the globe, Brazil, Peru and much of the rest of South America is enjoying a rise in living standards and economic and political stability not seen in decades. India, Turkey and Indonesia continue to enjoy robust growth as well. The average citizen in any of these countries might well wonder what all of the hand-wringing in the U.S. in Europe is about.
In the Sizemore Investment Letter, we’ve been recommending “back-door” ways to get exposure to these high-growth countries by buying American and European companies with high exposure to emerging markets. Our preferred way to do this has been through the consumer products sector and mobile telecom sectors. Companies like Procter & Gamble (NYSE:PG), Telefónica (NYSE:TEF) and Unilever (NYSE:UL) have the financial strength to withstand a potential financial day of reckoning in the U.S. or Europe while also offering real growth from the rise of the emerging-market middle-class consumer. But certainly, there are more ways to skin this cat.
The boom in commodities prices and materials stocks since 2000 has largely been an emerging market story. The rise of the middle classes has meant rapid urbanization and massive construction and energy projects that would have been inconceivable not that long ago.
I’ve avoided the building and materials sectors in recent years because, frankly, the “materials as a play on China” trade seemed a little crowded to me. But after a year of gut-wrenching volatility, investors have largely lost interest in growth investing altogether. And to me, this smells like an opportunity for a good contrarian trade. As a rule, I like long-term investable themes that have managed to avoid the attention of mainstream investors. And with investors now shunning materials, I’m starting to like what I see.