Market Update June 2021: Quality over Quantity?

“My tastes are simple, I am easily satisfied with the best”
(Winston Churchill)

  🔶 May has been and gone, all in all a fairly benign month in the markets with developed indices edging upwards and China regaining some lost ground from earlier in the year….data being 

S&P 500+0.6%+11.9%
MSCI W+1.3%+10.6%

  🔶 And on the currencies, GBP continues to strengthen. The US Dollar depreciates slightly against other currencies with the exception the Japanese Yen which was flat… being

EUR  -1.8%-0.4%
CNY -1.6%-2.4%

  🔶 June symbolises the start of Summer in the Northern Hemisphere and with that spending is boosted. Driving Season in the US begins on Memorial Day and consumption increases, not just on petrol but leisure time and retail also.

  🔶 Consumption means spending, which means increase in sales and revenue for those in the Consumer Goods sector and beneficial to many.  Riding this cycle and taking advantage of this seasonal spike would always make sense, but this year after the restrictions and lockdowns of the last 16 months, you can expect this boost to be several fold.

  🔶 Three of the largest consumer nations in China, the US and UK now have around 40% of their populations fully vaccinated. After a slow start, large European nations such as Germany and France are now also catching up. This allows governments to ease restrictions. We can all see in the media how much people are looking forward to their summer holiday this year and having had fewer ways to spend their money, very much looking forward to doing so.

  🔶 The Personal Consumption Expenditure Index (PCE) which measures consumer spending hit a 13 year high last month. The price of Crude oil is now almost double what it was a year ago and this sector of the market continues to do well.

  🔶 Consumerism can of course be at many levels. From kitting yourself out for the whole summer on $20 at a Wall Mart or Primark to spending thousands on a single dress or shirt.

  🔶 Regular readers will know that for a long time I have invested in the luxury goods sector. The story for me seems an obvious one with the growth of middle classes, especially across Asia where there is a desire to own the latest Gucci belt or Rolex watch. And when they can afford it they buy it.

  🔶 Nothing can illustrate the buoyancy of this market greater than the news this week that Jeff Bezos has been over taken as the richest man in the world by Bernard Arnault.  Monsieur Arnault is the Chairman and Chief Executive of the luxury brand company LVMH, a share which has seen its price increase by 28% year to date. He also just happens to own 41% of this consumer giant.

  🔶 Its an interesting comparison that both number 1 & 2 in the rich list with a combined wealth of a staggering US$372 billion (about the same as the GDP of the United Arab Emirates) are effectively in retail but at other ends of the market. Amazon is all about volume, selling as many products as it can with very low margins, LVMH is far more quality over quantity.

  🔶 One other French billionaire makes it in the current top ten, Francoise Bettencourt-Meyers who is the heiress of the L’Oreal brand and 33% shareholder. This again illustrated the demand for these classic brands and allows these French owners of legendary companies  to break into an exclusive club dominated by US tech giants like Gates and Zuckerberg.

  🔶 So if not already exposed with consumer, its time to get invested. If Quality is your preference over Quantity, then luxury goods is the way to go. In fact as the newly crowned richest man on the planet always says, “luxury goods are the only area which it is possible to make luxury margins”

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Patrik Shore Tenzing Pacific Services

Patrik Shore

Senior Advisor
From Sweden & New Zealand
7 years' insurance experience
Joined Tenzing in 2019
Crim Science
Speaks English and Swedish

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