Stock markets brimming with investment ‘excitement’

  • Gareth Williams
  • James Bristow

The investment opportunities are constantly changing as economies open up. The Global Equity Absolute Return managers at BlackRock Fundamental Equities are spanning the globe and finding plenty of investment ideas.

  • Government environment commitments to benefit select industrial stocks
  • Several innovative technology opportunities lie outside the U.S. and China
  • International leisure-recovery stocks have room to catch up with U.S. peers

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Innovation and dynamism

The world has come a long way in its response to and recovery from the COVID-19 crisis. While the progress has been big, it has not necessarily been even: Individual countries, sectors and companies are emerging at differing rates. And global supply chains are impacted by labour shortages, inflationary pressures and logistical issues.

This creates an interesting opportunity for active stock pickers, which we might sum up in one word particularly well suited to post-pandemic life: excitement.

As vaccines pave the way to economic reopening and recovery, we are eyeing up what we see as significant investment potential. Innovation and dynamism are driving strong company earnings across sectors and around the world – a great share of which is outside the U.S.

As divergences increase, the decisions will not be as broad as which industry or which country, but which individual companies within each.

Where does optimum excitement reside? We take a company-by-company approach to arrive at high-conviction ideas, but three themes are worth highlighting in the current environment.

Change in a live-event ticket website traffic, 2021 vs. two years prior

Source: BlackRock, with data from Similarweb, as of June 2021. The chart shows traffic to a global ticketing website in each of the three countries vs. two years prior

Social restart

There is palpable excitement after months of lockdown in areas related to socialization and celebration, a trend already reflected in valuations for many travel and leisure companies. We believe shares in some of Europe’s airlines can take off once vaccines are taken up by the majority of adults, consistent with patterns seen in the U.S. Another underappreciated opportunity: digital payment providers, which could benefit from a pick-up in travel and cross-border transactions.

Website traffic also highlights renewed desire for live experiences, such as concerts and sporting events. See the chart above. This has us favouring ticketing websites and entertainment providers while we find compelling short opportunities among some of the recent stay-at-home winners: coffee machine makers, staple food companies, online furniture retailers and DIY companies.

A sustainable future

Governments are more committed than ever to environmentally friendly improvements, which should compel further demand for raw materials and building essentials. This should benefit stocks across the industrials complex. Opportunity also exists in the electric vehicle (EV) supply chain, including some traditional original equipment manufacturers as well as EV battery suppliers.

Digital first

Work from home and contactless activities of all stripes have reset expectations for the future of computing and digitization. Many investors believe the U.S. and China are the only ports for innovative technology, yet many overlooked opportunities reside in Europe, Japan and across emerging markets.

We look for attractive growth trends that are mature in the U.S. but in early stages in more nascent economies. Several of these fall into the ecommerce category in emerging markets such as Brazil, where penetration rates are low but rising.

A result of this digitalization is that credit card use is on the rise as cash use wanes. Credit card penetration in the U.S. has more than doubled since 2001 and we see this trend accelerating globally. We find exciting short opportunities among companies involved in the distribution and handling of physical cash, including those installing cash machines.

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