Emerging Opportunities & The Capital Cycle
The post below is based on our note to VP clients on July 29th.
Within this quarter's update of VP's capital cycle models, we continue to see some enticing investment opportunities, particularly within emerging markets.
Understanding the Capital Cycle Dynamics
The capital cycle delves deep into competitive demand/supply dynamics within industries; offering predictive insights. As industry competition intensifies, it adversely affects future profit potential, and conversely, a reduction in competition boosts the potential for future profits.
Capital cycle scores tend to move slowly. Their gradual and deliberate moves give us time to hone in on precise long & short equity/sector opportunities over an extended 2-3 year horizon.
LATAM: Still cooking
In terms of the regional landscape, LATAM remains one of our structural favorites. Latam infrastructure plays remains attractive, as encapsulated within our "Age of Scarcity" report from last year.
For those interested in digging deeper into the LATAM infrastructure theme, Ian Bezek – an analyst we highly respect - wrote a comprehensive research on Centro Norte Airports that provides an in-depth analytical perspective. His views were recently updated.
To screen for other names, we recommend using VP's Stock Idea Generator. It combines capital cycle scores with our crowding model to rank companies.
The US Market: Complexity and Nuance
The US market’s capital cycle outlook is more mixed. In general, other regions are more attractive, but there are sporadic pockets of capital scarcity with potential for outsized returns in Tobacco, Oil & Gas, and Homebuilders.
China and Hong Kong: Rising
The jump up in rankings for Hong Kong and China names on our capital cycle scores lines up neatly with the bullish tactical signals seen throughout July.
One of the most consistent sources of in-depth bottom-up ideas in APAC is Asian Century Stocks. A detailed study on Café de Coral serves as a particularly insightful reference, given its robust rankings within our capital cycle framework.
The Living Capital Cycle Framework
Far from a static construct, the capital cycle framework is dynamic, continually adapting and responding. We view it as a repeatable and empirically proven way to unearth investment opportunities, which offers a distinct point of view from the usual value vs growth vs quality vs momentum frameworks.
For an all-encompassing view, visit https://portal.variantperception.com/charts