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Adviser Voice

July 7, 2021

The S-Curve and the emerging consumer



Disruption and disintermediation are increasingly common themes across the global corporate landscape. This article from GSFM draws on thematics from its global growth investment partner, Munro Partners.

Investors need access to global growth investments. New companies are disrupting or disintermediating established businesses in a range of sectors across the globe. Whether this disruption occurs in media, healthcare or technology, it is generally followed by a substantial growth runway. Exposure to global growth investments diversifies the typical exposure many investors have to Australian equities and global value equities.

There is a simple philosophy that underpins growth investing: earnings growth drives stock prices. Sustained earnings growth is worth more than cyclical earnings growth; despite this, the market consistently misprices growth and sustainability, creating opportunities for growth investors.

Nick Griffin, CIO of Munro Partners, often describes equity investing as a game of some winners and lots of losers. A global growth product should aim to select great growth companies – and to find those winners, it’s about identifying structural change.

The S-Curve outperforms the macro

The S-curve tracks how a company or industry grows over its lifecycle. There comes a juncture in a lifecycle when growth inflects, driven by a structural change. It’s the tailwind created by this structural change that allows a company to deliver and create wealth.

Facebook, Amazon and Apple are prime examples of companies that continue to ride the wave of demand for technology products and services that did not exist 15 or 20 years ago. Mobile phones, internet search, social media – products and services now considered indispensable in our daily lives.

To recognise the above mentioned winners, investors need to identify the next round of structural change and the companies that will benefit from each. To maximise the growth opportunity, this needs to be as close to the start of the S-curve as possible, and not at the end.

While the S-Curve will outperform the macro, the latter should not be discounted.

The vaccine rollout around the world, combined with political stability in the US, means there is likely to be a broadening in the recovery in global markets and earnings continuing to grow.

The volatility index, or VIX, also offers clues to the outlook for equity markets (figure one). During difficult periods, such as the GFC and more recently 2020, the VIX rises and then gradually moves into a lower volatility band. Signs of this are apparent with the VIX dropping below 20 in the past few months (from a high of 66 in March 2020). This further supports the argument for a broad-based recovery and buoyant equity markets over the months and years ahead.

Structural ideas for the long term

Despite the massive disruptions that economies and markets have experienced over the past 12 months, there are themes and investment ideas that will always prevail. It’s important to note that S-Curves aren’t always digital and that post pandemic recovery will unlock further structural opportunities in a range of sectors.

One structural theme that will ultimately drive earnings growth is that of the ‘emerging consumer’.

These consumers come from emerging markets, which, like every developed market, goes through five distinct stages of growth[1]:

  • Traditional society: based on primary industries, such as subsistence farming
  • The pre-conditions of take-off: spread of technology creates a more productive agricultural economy
  • Take-off: industrialisation begins, and technological breakthroughs occur
  • Drive to maturity: more complex manufacturing, and large-scale infrastructure investment takes place.
  • Age of mass consumption: urban society and a tertiary industry dominate, as disposable income grows.

As the two most populous nations, India and China, relentlessly transition toward the age of mass consumption, increased wealth translates to larger aspirations.

The emerging consumer is one of Munro Partners’ areas of interest (AOI) and is all about the rising wealth effect in emerging economies, particularly China. As income levels rise in these countries, consumption habits and patterns change.

Sub-sectors of this theme include Luxury Goods, Cosmetics, Travel and Global Brands.

Growth in spending on luxury goods pre-pandemic could be observed in the prevalence of luxury brands or goods in any airport or major city. Alcohol is another example; as an economy develops, its consumers are more likely to shift to consuming greater quantities of high-end liquor.

These trends all target the higher growth rates that will result from rapidly modernising emerging economies as they move from low rates of GDP to high rates of GDP. Companies linked to these trends – such as Louis Vuitton in luxury goods, Airbus and Boeing in aerospace, and Diageo or Pernod in drinks – are beginning to look attractive again as travel and spending starts to pick up.

Case study: Aerospace

Aerospace is a good example of an emerging consumer industry starting to surface from the lows of the pandemic. Even though there’s been a reduction in the number of international travellers as many countries remain locked down, 80 percent of people in the world today have never boarded an aeroplane.

Even before the pandemic, when more than three billion people travelled every year – the equivalent of just under half the world’s population – it was actually the same people, mostly in developed countries, travelling many times a year.

Of that large proportion of people in the developing world who have never travelled by air, the majority would like to. There is no doubt, as their income allows it, a growing number of consumers will become regular air travellers. The developing world is where the majority of growth in aerospace is likely to come from in in the years ahead.

In Southeast Asia, Africa and China, travel growth is expected to grow in excess of GDP over the next two decades. And even if international travel continues to be off limits, people will want to travel by air in their own countries. The number of airports in China, for example, is forecast to double to 450 airports by 2035.

Boeing’s commercial market outlook 2020-2039 forecasts that Chinese airlines will need nearly 8,240 new passenger aircraft deliveries over the next 20 years. The majority of these, nearly 80 percent, will be single aisle aircraft.


Airbus, a European multinational aerospace corporation, is a key player that will benefit from this change in travel habits and patterns. Narrow body, or single aisle, aeroplanes used for shorter domestic flights are more profitable than the wider body planes used for long haul flights.

Both Boeing and Airbus have been very profitable with narrow body aircraft, to the point where they could potentially become more profitable companies overall without the wider body planes. Boeing estimates the gross margin on narrow body aircraft at 22 percent compared to 0 percent for the larger long haul aircraft.

Boeing also estimates that the majority of aircraft are expected to be narrow body by 2039; 33,850 narrow body aircraft compared to 8,640 long haul aircraft. This trend is already starting.

In the first quarter of 2021, Airbus reported that of the 39 aircraft ordered, 38 were for narrow body aisle aircraft. That overall number of orders for the quarter was significantly fewer than the 356 ordered in the first quarter of 2020, but the number of commercial aircraft Airbus delivered in quarter one 2021, at 125, was slightly up on the 122 delivered in the same quarter last year.

Boeing and Airbus combined have an effective monopoly on the narrow body aircraft space which makes them very attractive investment prospects.

Where to from here?

Digital might have been a key thematic winner from the pandemic, with the share prices of the likes of Zoom and Amazon skyrocketing, but it has not been the only beneficiary. A broader economic and market recovery unlocks opportunities in other areas such as supercomputing and the manufacture of semiconductors and semiconductor equipment. It can assist growth in climate related stocks in clean energy and solar batteries as well. These areas have all been identified as AOIs for Munro Partners.

Broader economic and market recovery will also support further growth in spending by the emerging consumer. Aerospace may be an early leader in the emerging consumer space, but due to its relatively quick recovery from Covid, China is already experiencing growth in consumer spending on luxury goods.

Italian luxury fashion brand Moncler is well known for its outerwear and skiwear, particularly its down ‘puffer jackets’. Founded in 1952, the company took its name from the abbreviation of Monestier-de-Clermont, an Alpine town near Grenoble, France. Moncler recently reported that its Chinese mainland revenues more than doubled in the first quarter of 2021.

According to the latest Bain-Altagamma 2020 Market Monitor, the personal luxury goods market is expected to recover to pre-Covid level between 2022E and 2023E with an implicit +8 to +14% average yearly growth (CAGR) for the next three years, depending on economic trends, consumer confidence and tourism flows.

As these companies’ earnings outlooks improve, their stock prices should follow.

In a diversified portfolio, it’s important for investors to have exposure to global equities – after all, as it’s well known, the Australian market is a small player on the world stage. However, within that exposure, it’s important to diversify across investment styles and include growth investments, so investors reap the benefits of the disruption and disintermediation that has come to characterise structural shift in global markets over the past twenty or so years.


[1] W.W. Rostow, The Stages of Economic Growth: A Non-Communist Manifesto (Cambridge: Cambridge University Press, 1960), Chapter 2, “The Five Stages of Growth–A Summary,” pp. 4-16
The information included in this article is provided for informational purposes only. The information contained in this article reflects, as of the date of publication, the current opinion of Munro Partners and is subject to change without notice. Sources for the material contained in this article are deemed reliable but cannot be guaranteed. We do not represent that this information is accurate and complete, and it should not be relied upon as such. Any opinions expressed in this material reflect our judgment at this date, are subject to change and should not be relied upon as the basis of your investment decisions. All reasonable care has been taken in producing the information set out in this article however subsequent changes in circumstances may occur at any time and may impact on the accuracy of the information. Neither Munro Partners, GSFM Pty Ltd, their related bodies nor associates gives any warranty nor makes any representation nor accepts responsibility for the accuracy or completeness of the information contained in this article.

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