South Africans have a strong home bias when it comes to their investment choices, but it’s come at a high opportunity cost over the past five years. While it’s true that the SA unit trust industry offers funds that invest offshore, these funds represent about 10% of the unit trust industry’s R2.5-trillion of assets. This leaves a lot of room for growth.
More than half of the see-through earnings of companies listed on the JSE are generated outside SA, making a diversified portfolio of JSE-listed stocks quite global in nature. But by restricting one’s global investment choices to only the handful of large JSE-listed multinationals, you run the risk of missing out on attractive shares listed elsewhere.
There is little excuse for South Africans not to have a much more diversified global investment portfolio. And there’s plenty to choose from.
Out of the major stock exchanges globally, the technology-heavy Nasdaq was the standout performer for 2019, returning almost 40% in US dollar terms. But there are many opportunities in other markets too. Here are five stocks to give a glimpse of what’s available if you broaden your investment universe to more than just the JSE’s 1% of companies listed around the globe.
The a2 Milk Co — New Zealand
You might not be aware of this, but more than half the earth’s population is lactose intolerant. Some studies have shown that the issue is not lactose itself, but rather the A1 protein produced by most cows.
The a2 Milk Co was co-founded in New Zealand in 2000 by a scientist and a dairy farmer who developed herds that would produce milk containing only the A2 protein.
The company’s profits took off exponentially when it launched an infant milk formula line in 2013. The product became highly sought after in China after a milk scandal dented trust in domestic dairy brands. In its past year, the company’s revenue rose 41%, while net profit climbed 47% to $272m.
Today, a2 Milk still has a lot of runway left to gain market share from competitors.
SalMar ASA — Norway
This company is one of the world’s largest and most efficient producers of farmed salmon, which is gaining in popularity relative to beef, pork, chicken and other fish. However, growth in the global supply of salmon is limited due to the stagnation in the wild salmon population, and the fact that farmed salmon requires a very narrow range of ocean temperatures. It’s a supply-and-demand dynamic that ensures an attractive pricing environment for major producers such as SalMar.
While salmon is traditionally farmed in calm ocean waters near the coast, SalMar is at the forefront of developing offshore salmon farming "rigs" in the open ocean, which can potentially increase production substantially.
Air Canada
Canada is the second-largest country in the world by area, but it has a population of under 40-million people. Still, more than 80% of Canada is urbanised, which leaves air travel as the most efficient mode of transport between Canadian cities, notwithstanding the movement named flygskam (a buzzword aimed at seeking to shame people for using such a carbon-inefficient mode of transport).
Air Canada is the nation’s largest airline and operates in a duopoly with competitor WestJet. More than 80% of available domestic seats are controlled by these two companies. This has led to a scenario where domestic air travel in Canada is almost as expensive as international air travel. The restrictive regulatory regime in the country’s aviation sector makes increased competition unlikely — and this protects Air Canada’s healthy profit margins.
Ferguson Plc — UK
Ferguson is listed in London, but the largest plumbing and heating, ventilation and airconditioning products distributor in the world makes 95% of its money in the US.
This year it will unbundle its UK operations to shareholders as a separately listed company. This will probably be followed by a listing of the US-focused arm on the New York Stock Exchange. This corporate action could narrow the valuation gap between Ferguson and its listed competitors in the US.
Housing growth in the US has eased, but for as long as summers are hot, winters are cold and people prefer running water in their homes, Ferguson will have a lucrative market to serve.
Meituan-Dianping — China
While Prosus is battling it out with Uber Eats, Deliveroo and Takeaway/Just Eat to create a dominant food delivery platform in Europe, Meituan Dianping has already done just this in China.
As China’s third-largest internet company (behind Alibaba and Tencent), its class B shares, which are listed in Hong Kong, have more than doubled in 2019.
Along the way, Meituan Dianping has morphed into a must-have "super-app" for all kinds of services. Don’t let the p:e of 300 put you off — the company only recently turned profitable after it shifted from offering just a food delivery service to providing other higher-margin services too.
Food for thought, Prosus?
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