3 global industry trends to watch

Anthony Fensom | 29 Jan 2016

Anthony Fensom is a Morningstar contributor.

Emerging-market volatility, penny-pinching by consumers and governments, tightening regulations and digital disruption are key global trends affecting companies in 2016, according to the Economist Intelligence Unit (EIU).

For Australian investors though, taking advantage could require a broader perspective than simply looking at ASX-listed stocks.

Locally, Morningstar sees sectors with a positive earnings outlook in 2016 as comprising banks, diversified financials, gaming, healthcare, other industrials and infrastructure, while those with a negative earnings outlook include metals and mining, oil and gas and mining services.

Globally, the EIU predicts positive world GDP growth of an estimated 3.4 per cent this year, in line with the International Monetary Fund's latest forecast.

However, looking beyond the broadly sunny outlook, its recent report, "Industries in 2016," sees three key trends driving corporate strategies and investor returns in the Year of the Monkey.

Key trends

The first key trend is a "deepening climate of parsimony". As seen in Australia, "rich-world consumers have not enjoyed the recovery in their incomes that they would have liked, while some of their emerging-market brethren will join them in demanding more for less, as confidence fluctuates".

The result will be even more entrenched discounting by retailers, with consumer goods companies needing further cost savings to maintain profits.

Governments will also continue to squeeze healthcare operators in the face of growing demand from ageing populations, as seen in recent budget measures in Australia which hit shares in Primary Health Care (PRY) and Sonic Healthcare (SHL).

Another key trend of regulatory tightening will also hit the financial sector, with the stated goal of fending off "financial apocalypse". Regulators with recent memories of the global financial crisis will enforce tougher capital requirements on banks and insurers, hitting Australia's big four banks.

The climate change deal agreed in Paris will also impact various industries, including energy and manufacturing. With market bears already in the ascendancy for coal, natural gas and oil, oil and gas producers and coal miners could suffer further, while the winners could include renewable energy providers.

Despite falling oil prices, tightening emission standards will help sales of green vehicles in 2016, with other new trends from overseas including: self-driving cars by Google and traditional automakers such as BMW, General Motors and Mercedes; new hydrogen fuel-cell cars by Honda and Toyota; and the launch of Apple's in-car entertainment and information software system, CarPlay, along with its competitor, Android Auto.

The third trend to watch will be digital disruption, as flagged by Australia's Prime Minister Malcolm Turnbull, among others.

With internet access spreading to reach more than 50 out of every 100 people worldwide in 2016, telecommunications firms will be stretched to make the investments needed to support the digital consumers' demands in the face of regulatory imposts, while bricks-and-mortar shops will face yet more competition from online rivals.

Other opportunities will also emerge from the expansion of public health provision in developing countries including China, which will benefit the Asian push by Australia's Ramsay Health Care (RHC). New initiatives in treating Alzheimer's disease are also expected from US company Biogen.

In financial services, the EIU says fintech firms will challenge industry goliaths, but the established industry will benefit from growing bank usage in emerging markets along with "a growing realisation that, worldwide, most people have failed to save enough to cover life's vagaries".

For consumers, smartwatches from Casio and Tag Heuer will be among anticipated product launches, along with a boom in film and TV-related merchandising such as that seen around the recent Star Wars movie from Disney.

Other trends will include China's "Singles Day" shopping event going global and online retailers such as Amazon rolling out physical stores, while increased mobile video will benefit not only YouTube and Facebook but also Periscope and Vine.

Capitalising on global trends could prove rewarding for both Australian and overseas stock investors in 2016, aided by the expert analysis provided by Morningstar.