Are there any opportunities among the headlines?
Dec 17, 2012 | Our Perspectives Archive
We see possibility even in uncertain times. Though markets continue to be challenged by issues such as the eurozone crisis, fears over growth in China and a slow jobs recovery in the United States, there are things that could “go right” with the world.
Technology is getting "smarter"
The rise of “smart technology” has led the move away from traditional PCs and laptops. Sales of smartphones and tablets have increased rapidly in recent years, and we expect growth to rise far beyond what we see in other technology sectors.
But while it may seem as if everyone has a smartphone, penetration rates are low, suggesting that further growth is yet to come. On a valuation basis, technology is trading at a price-to-earnings ratio slightly below the S&P 500, while offering the potential for nearly double the growth.1
We expect growth to be driven by innovation, with corporations starting to spend again and consumers flocking to new products. We see particularly good opportunities in cloud computing—remote data servers that can be accessed via the web—as well as mobile devices and related businesses.
Industrial second coming in the United States
We believe the industrial resurgence offers a compelling opportunity, and we see a number of ways to participate in this trend at an early stage. For example, in the United States, more than a dozen chemical makers are expanding, and several manufacturers are building new plants.2
We believe five key factors are driving this trend:
- An abundant supply of U.S. natural gas, leading to cheaper energy
- Significant wage inflation in China and other emerging markets
- Restrained U.S. labor costs
- Demographic trends among working age populations
- A weaker U.S. dollar
Meanwhile, wages in China have quadrupled in the last decade, eroding the competitive advantage emerging markets have enjoyed.3 The result in the United States has been the highest manufacturing workweek in 40 years, and faster job growth in manufacturing versus services.4
In 2001, shale gas accounted for less than 2% of U.S. natural gas production; now it accounts for almost 30% and is expected to grow to 49% by 2035.5This “shale revolution” has been driven by technologies that have accelerated the large-scale exploration and production of dry natural gas—as well as oil and natural gas liquids—in the United States. Already, we have seen a large shift in trade, with the United States exporting about one million barrels of refined products per day, and these trends are projected to continue.6
- Where emerging reserve areas are being exploited and older areas rejuvenated
- Where investors can take advantage of “orphan” assets divested from large energy companies that are rebalancing their asset portfolios, or energy service companies that provide equipment manufacturing, engineering, construction and maintenance services to exploration and production companies
- Where a lack of infrastructure is creating demand—nearly $33 trillion is needed to meet demand over the next 25 years:
–New intrastate and interstate infrastructures are required to gather, process, transport and store energy products in the United States.8
–Resources from low-cost production regions (such as the United States) will need to be transported to regions with less supply and more expensive energy
While headlines focus on slow growth and changeable markets, we will continue to seek and develop opportunities.
We invite you to contact us to learn more and a J.P. Morgan representative will be in touch with you.