Do you know what dollar stores, Japan’s structural transformation and the Ocean economy all have in common? They’re not Fed rate cuts. This week we feature a wide range of subjects.
Consumer stocks are diverging.
Dollar stores have struggled as core customers spend less and mega channels take market share by offering superior convenience and value. U.S. Retailing Broadlines & Hardlines Analyst Robby Ohmes noted weak sales for core low-income customers, who account for ~60% of total revenues and are predominately households earning <$35k annually.
Ahead of last week’s Japan equity conference, we addressed key investor questions around the country’s structural transformation.
Inquiries persist around whether resurgent inflation is here to stay and our Japan Economics team points to structural labor shortages underpinning rising prices. Japanese households hold around half of their financial assets in cash versus just 13% in the U.S. As to whether these high cash balances will hold, inflation and firm equity markets suggest a gradual shift into risk assets. Corporate reform has picked up as companies have been forced to deal with higher prices for labor and rising interest rates. This should continue to benefit markets in the medium-term, but Japan Strategy does believe it will take some time before equities set another new high. Many of the ~250 corporates at the conference offered supportive views on structural change.
Oceans are a growing source of investment opportunity.
Head of Global Sustainability Research Panos Seretis notes that the Ocean economy could double from $1.6T to $3T by 2030, creating 40 million jobs. Investors have started to ride the wave—AUM (assets under management) in global water-related investment funds has grown 3.8x in the past five years. Ocean energy, sea freight, and aquaculture are areas ripe for investment. Emerging ocean energy technologies like Wave Energy Converters and Tidal Barrages could harness 45,000-130,000 terawatt-hours (TWh) of potential power annually, which could cover >2x current global electricity demand. Aquaculture, an alternative to overfishing, now provides 50% of fish used for food, crucial for 3 billion people globally whose main protein source is seafood. The Ocean economy is also driving new markets. With 30 megaton of plastic in oceans today and an expected five-fold increase by 2060, a bourgeoning plastic credit market could incentivize more recycling and collection projects.
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