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Finding Growth in a Growth Starved World
1. For the past six months we have gone on record about our concerns with the economy and the
eventual impact it will have on the financial markets.
Our updated views are as follows:
The stock market is in a relief rally, a typical event in a longer-term downward market.
This recovery will take longer than the 2008 Financial Crisis and 2000 Tech Bust.
The prospects of Saudi Arabia, Russia and Iran coming together to reduce or limit oil
production are highly improbable due to the following:
Russian oil is transported through non-insulated pipes across frozen tundra and
must flow to avoid freezing and avoid other structural damage
Saudi Arabia’s costs to produce a barrel of oil are estimated to range from $1 - $5
and thus they continue to profit at $30 oil
Iran has stated publicly its intention to recapture market share lost during the prior
U.S. imposed embargo
Basic service consumer companies in Emerging Markets will outperform.
Developed markets will show low or no growth over the next 12 months.
High Yield Bond defaults will accelerate, providing opportunity for yield investors.
Recommendations:
Rotate from long-only equities to long-short strategies that are designed to buffer
downside risk and profit from volatility.
Rotate growth allocations from glamour-momentum stocks to select consumer and basic
service companies in the emerging markets, particularly India and China.
PIMCO recently described emerging markets as “The Trade of a Decade”.
A recent article in Barron's quoted Katie Koch of Goldman Sachs Asset Management
making a case for investing in India and offering the following:
• India’s real GDP could grow from 7.5% today to 10% within the next several years
• 1 million people will enter the workforce in India each month for the next 15 years
2. • Funds that buy the index won’t experience the full benefit of the uptick
• Prefer India’s smaller cap stocks, particularly consumer, e-commerce and
infrastructure
And while the past several years have been particularly difficult for EM’s, we suggest investors
also consider the following:
India and China are net oil importers, thus low energy is a benefit to their development.
EMs learned from the last credit crisis and have implemented greater controls.
Exceptionally high growth rates and low costs for equities exist in basic industries.
Examples:
La Opala RG Ltd.
Indian manufacturer of tableware including plates and crystal glassware.
Market
Cap (MM)
5 YR
ROE
Dividend
Yield
Tot Debt /
Tot Cap
CFO 5 yr
growth
5 yr Sales
Growth
5 Yr Avg.
P/E
463 39% 0.2% 4% 35% 25% 21
Vinaseed
Vietnamese producer of high yield seeds including rice, sesame and pineapple.
Market
Cap (MM)
5 YR
ROE
Dividend
Yield
Tot Debt /
Tot Cap
CFO 5 yr
growth
5 yr Sales
Growth
3 Yr Avg.
P/E
69 27% 2% 22% 162% 25% 9
In short, we believe that Developed Markets will be challenged to achieve growth, and that well-
managed consumer companies serving Emerging Markets represent an excellent investment
alternative compared to domestic high P/E glamour stocks.
The views expressed represent the opinion of The Stanley-Laman Group, Ltd. a Registered
Investment Advisor. We further advise investors to consult with their investment advisors
prior to implementing any of the aforementioned strategies, many of which are designed for
High Net-Worth Qualified Investors only. Investing in any referenced strategy involves the
risk of loss of principal.