Coffee Sipping Big Board Stocks

[EZ2]

How to make money as the 'disenchanted' middle class changes politics

MARKETWATCH 8:23 AM ET 5/22/2017


Credit Suisse has 5 "supertrends" that will shape investing

Brexit, Trump and European protest parties -- examples of the global rise in populism over the past year are plentiful.

And it can be good news for investors, if you know where to look, say Credit Suisse strategists as they lay out five " supertrends" that could drive stocks within the next decade.

The "disenchanted Western middle class" is one of these key long-term themes that investors could profit from, the strategists say in a report out Monday. That's after the 2007-8 financial crisis prompted austerity measures and led to a rise in inequality, leaving voters in many Western countries angry and demanding change.

"If you look back at the last nine years after the financial crisis, in most industrialized countries, the average household has not seen any increase in their per capita income," said Nannette Hechler-Fayd'herbe, head of investment strategy and research at Credit Suisse.

In many instances, households have also faced a situation where there were not enough jobs, so unemployment rates were elevated. That has "squeezed the middle class" in particular, she said in an interview.

"We expect governments to make a number of policy changes in order to address the issues, and the beneficiaries of that are going to be sectors that benefit from a focus on a better consumer outlook, more prosperity, higher wages for people and more jobs," she added.

That's where the opportunities for investors come in. The Credit Suisse strategists identify three areas where they expect to see long-term improvement, as newly elected policy makers seek to meet the demands of angry Western societies.

"Newly elected governments have strong popular mandates and can be expected to keep their electoral promises. Therefore, the next 4--7 years are likely to bring about economic policy measures aimed at appeasing the Western middle class in the developed markets," the bank's strategists said in the report.

The Swiss bank does not offer any individual stocks to invest in, but points to sectors that are likely to be the biggest beneficiaries.

1. Investing in job security

First of all, the "disenchanted" middle class puts great importance on job security. That could translate into government policies that stimulate hiring in sectors with high unemployment, such as industries with a lot of low- skilled workers. Examples include general manufacturing (XLI) , construction (FLM) , telecom equipment (VOX) and IT manufacturing, Credit Suisse said.

Car makers (CARZ) and aircraft builders (ITA) could also end up getting state support, as they typically use a local workforce. The movement of jobs overseas is one particular pain point in worries about jobs.

2. Rooting for "national champions"

As governments seek to boost jobs, they are likely to give companies an incentive to build factories at home, instead of ramping up production overseas. U.S. President Donald Trump, for one, has pledged to put America first (http:// www.marketwatch.com/video/trump-inaugural-address-it-going-to-be-america-first/0AC5590A-8B7C-4E80-9288- 448A21D1EBB1.html), saying every decision on trade will be made to benefit American workers and families.

"So-called national champions spring to mind in this context. These companies can be the subject of soft mercantilist measures like government incentives to build factories at home, of public shaming if they outsource production, of a reduction or suspension of corporate taxes if they invest domestically," Credit Suisse said in the report.

"National champions" are mainly found in the consumer sectors (XLP) and are brands that are well recognized globally. That means consumers usually are loyal and will stick with the product, even if protectionist policies push up prices, according to the bank.

3. Securing security and defense

As national governments shift policy to meet populist demands, geopolitical uncertainties have grown. Trump's foreign policy changes have been accompanied by growing tensions in Asia, with North Korea a particular focus, and his administration has earmarked extra funds for the fight against Islamic State.

The tensions between military heavyweights is expected to lead to an increase in defense spending, a potential boon for companies in the aerospace and weapons sectors (ITA) , Credit Suisse said.

In Europe, for example, only two countries -- the U.K. and Poland -- currently meet NATO's target of spending above 2% of their gross domestic product on defense. But Germany and France have pledged to meet the NATO guidelines, setting European defense companies up for an earnings boost, the strategists said.

On top of this, the battle against cyber-criminals is expected to intensify in coming years, potentially leading to higher state investment in the cyber-security sector. The recent WannaCry attack that paralyzed more than 200,000 computers in at least 150 countries -- including sensitive government systems -- clearly illustrated the threat from online criminals. Shares of cyber-security and anti-virus companies (HACK) rallied in the aftermath of the attack (http://www.marketwatch.com/story/anti-virus-stocks-rally-with-wannacry-cyber-attack-expected-to-go-on-the-rampage- again-2017-05-15).

Beyond populism

Aside from these shifts in government policy to accommodate the angry middle class, Credit Suisse identified four other long-term supertrends for investing.

-- Infrastructure spending: From the U.S. to India, governments have embarked on massive infrastructure projects to help stimulate domestic growth. That should benefit materials suppliers such as large-scale cement makers, steel companies and construction-equipment firms (IGF) , the bank said.

Utilities (XLU) , water sanitation (PHO) and local transportation (IYT) should also see a boost from this trend, it noted.

-- A.I. and robots: Technology and digitization may have come a long way in recent decades, but their evolution is only expected to speed up in coming years.

This so-called fourth industrial revolution should boost investment in robots and artificial (ROBO) creating opportunities for semiconductor companies (SOXX) , cloud-computing firms (SKYY) , augmented reality specialists and biotechs (IBB) , to name a few.

-- The "silver economy": Credit Suisse expects a one-billion increase in senior citizens by 2050 worldwide, but says society isn't prepared to deal with the aging population.

Investors who tap into the "continuum of senior wants and needs -- such as senior-centric consumer goods, health-care services, senior housing, as well as wealth management and pension solutions -- should see attractive returns," the strategists said.

-- Millennials: At the other end of the scale, millennials make up about 50% of the world's population. The change in values and lifestyles they bring represents Credit Suisse's fifth investment supertrend (MILN) .

Most likely to benefit from the youngsters' habits are companies in the social media industry, property developers with a focus on "micro apartments" and clean energy firms, including electric car makers.

-Sara Sjolin; 415-439-6400; [e-mail]


(END) Dow Jones Newswires
05-22-170823ET
Copyright (c) 2017 Dow Jones & Company, Inc.