Gavekal Capital: Searching For Sales Growth In Developed Markets

Tuesday, September 9, 2014

Searching For Sales Growth In Developed Markets

We have been living in a ZIRP world for over 5 years now. The aim of low interest rates is to stimulate demand and while demand has undoubtedly increased, we can infer by the continuation of extraordinary monetary policies around the world that the level of demand is still below where policy makers would prefer it to be. This probably explains why sales are being valued at such a premium in the equity market (here and here are two of our most recent posts looking at this).

With that in mind, we are on the hunt for industry groups where sales growth has been better than average. In the Developed Markets, the average 10-year least squares growth rate by industry is 6.6%. Exactly half of the 24 industries have managed a growth rate higher than the average as you can see highlighted in Figure 1. The highest growing industries have been in Technology, Health Care, and Consumer Discretionary sectors. While the slowest have, unsurprisingly given a financial crisis occurred in the past 10 years, have been in the Financial sector. Looking forward at sales growth expectations over the next four years, software & services continue to have the brightest prospects and banks continue to have some of the dimmest. Overall, however, sales growth is expected to be even slower than it has been over the past 10 years (Figure 2).  The average four-year sales growth rate is expected to be only 5.4% per year and only 1 industry is expected to grow by over 10% compared to 5 industries who surpassed that level over the previous 10 years. Consumer Services and Media are expected to have largest decrease in sales growth over the next four years compared to previous ten (Figure 3). While Banks, Automobiles & Components, and Real Estate are expected to have the largest increase. Overall, 17 of the 24 industries are expected to have slower sales growth over the next four years than they did over the previous 10 years. 

Figure 1

Figure 2

Figure 3