RUMINATIONS ON OUR INVESTABLE UNIVERSE, DISTILLED
Fundamental Thinking presents the perspectives of Harding Loevner’s analysts on a range of investment topics, highlighting our fundamental research and providing insight into how we approach quality growth investing.
Peer-to-peer lending platforms have flourished in a period of steady economic growth, but their popularity with lenders may decline during the next downturn.
Peer-to-peer (P2P) lending platforms—credit marketplaces that bypass banks by connecting individual lenders to borrowers directly—have experienced rapid growth since the global financial crisis and accounted for about US$85 billion in global loans in 2017. Some observers predict this figure to approach US$300 billion by 2022. However, a deterioration in the credit environment during the next downturn may drive P2P lenders away.
If global demand for food is rising, why did producers of a key fertilizer falter?
A growing human population requires more food—and more fertilizer. As the production of potash—one of the most heavily used fertilizers—is controlled by a limited number of companies, one might expect its major producers to be sound investments. But a historical examination of the global potash industry reveals a nuanced story, with some important lessons for investors.
By emphasizing efficiency over tradition, ABC-Mart and MonotaRO have achieved high growth despite Japan’s stagnant economy.
Japan’s GDP growth has remained low for nearly 30 years and averaged just 1.2% between 2012 and 2016. Even so, some Japanese companies have found rapid—and profitable—growth by eschewing many of Japan’s traditional business practices, upending their industries in the process.
Uber, Airbnb, and other stars of the sharing economy have high valuations that seem to belie their profitability. Is the sharing economy all hype?
In the wake of the global financial crisis, some observers expected the sharing economy would change consumption patterns. However, despite some successful outliers, many sharing platforms have failed to achieve scale and profitability. Three Harding Loevner analysts discuss why this is the case and what we might expect from the sharing economy in the future.
Cement’s “value to volume” ratio, among other factors, sets cement companies in a profitable position
Low exposure to global competition, high domestic barriers to entry, and sustainable sources of demand are structural advantages that endow cement companies with pricing power.
New tools like 3D knitting, body scanning, and augmented reality could make “custom” the new black
Though once the norm, custom clothing has been the domain of the wealthy for generations. Soon, innovations in manufacturing and design could make customized apparel widely accessible to mainstream consumers once again, unstitching the apparel, footwear, and accessories industry in the process.
As algorithms reshape the life sciences, who will make it big?
Exploitation of “Big Data” has driven the profits explosion at internet companies such as Facebook, Google, Tencent, and Amazon.com over the past few years. Are computational advances—such as machine learning, artificial intelligence, and cloud computing—now ready to do for life science earnings what they have done for internet earnings?
As Big Beer finally learns the mantra: "if you identify a trend, ride it, don’t fight it," the growth path for craft brewers and distillers becomes more difficult, though not impossible.
Some of the factors that allowed craft beer to flourish in the US a decade ago, such as growing consumer interest in all things artisanal and a more favorable regulatory environment, are now fueling domestic growth of craft spirits. Craft beer is also beginning to take market share in non-US markets. However, the big alcohol conglomerates are demonstrating they will not be as passive this time around.
The transition to fifth generation wireless technology will likely have deeper and broader economic implications than previous transitions.
5G will surpass three technical thresholds: 1) wireless internet speeds will be as fast as or faster than wired speeds; 2) the “internet of things” will have mass industrial applications for the first time; and 3) latency will fall to one millisecond—faster than the speed at which humans perceive touch feedback as instant—giving rise to “tactile internet” applications. These breakthroughs will transform much more than the telecommunications industry.
Though the future of cars may be automated, our investment decisions will be anything but.
While many predict the widespread adoption of fully autonomous vehicles by 2030, we see a number of risks that could stall the shift from driver assistance (Level 1) to fully automated driving (Level 5). It also remains to be seen whether software or hardware makers stand most to gain from this shift, further complicating matters for investors.
The younger, better‐educated generation of Chinese is beginning to disrupt industries around the world, presenting investors with underappreciated challenges and opportunities.
The number of Chinese students graduating from university each year has more than septupled from 1 million in 1997 to 7.4 million in 2015. This expanding talent pool, combined with the recent surge in R&D and capital expenditure in China, is quickly raising the international competitiveness of Chinese firms in high value-added industries.
Can new entrants like Dollar Shave Club break the hegemony of the branded consumer staples giants, or will it be dominance as usual?
Revenues from ubiquitous products such as coffee, detergent, and toothpaste have gone to a handful of branded consumer staples conglomerates such as Nestlé and Unilever for generations. With new trends in e-commerce, online advertising, contract manufacturing, and distribution channels changing the competitive landscape, industry fragmentation is perhaps now more likely than ever.
By sharing the thinking that underpins our investment decisions, the multimedia series will provide additional insight into how we construct and manage portfolios.
Topics covered in Fundamental Thinking will not be moored to the demands of portfolio performance reporting. Rather, the subjects explored and the debates highlighted will be more attuned to the underlying fundamentals we analyze.