Do Consumer & Market Trends Matter?
There are various ways to assess stocks to invest in, and value investors often head straight for the price-to-book ratio to see if a stock is trading higher or lower than the company’s financial (true) value, but there’s more to investing than a balance sheet.
Consumer and market trends have a significant impact on the companies you choose to invest in.
Globalisation is a topic that we’ve heard more about over the past 10 years, and the creation/adoption of the internet has shaped how our society works.
You can see this in the shift in consumer trends where consumers are increasingly favouring platforms with global reach like Netflix, Spotify and Amazon.
As a result, cross-border money flows are on the rise, and more specifically global payment revenues were up by 11% in 2018, which is the largest percentage increase compared to the past 5 years.
With the ability to now search for the best products online, at competitive prices, consumers are expecting the same capabilities they have with Amazon or Spotify from investment/banking products.
To focus more on the finance industry, cross border investing is becoming more popular and international financial and housing markets are already syncing up. This is evident when trading on the ASX (Australian Securities Exchange). If the US market is up over the trading day, the ASX will be too.
But, there’s more than just consumer trends that are driving the change in the finance industry, there’s also the market trends. In particular the RegTech (Regulatory Technology) industry is growing alongside the fintech space, and regulatory initiatives such as the Fintech Agenda by the EU, GDPR and PSD2 are helping to unify regulatory frameworks internationally.
The result of which will lead to a rise in FinTech’s with global reach and impact.
So how does this affect your investments?
If you’re investing in banks right now, you will want to consider how the banking landscape will change over the next 10 years.
Banks are already becoming more of a utility as the account and custodian infrastructure behind FinTech’s, but banking clients are moving towards FinTech services and banks can’t keep up with this shift. A recent report by Thomson Reuters showed that banks investment into technology is only yielding them a profit because their costs are being reduced, not because they’re engaging clients with their new tech features.
Just last year, we saw the first fintech acquire a bank!
Raisin is a European Fintech that’s acquired shares in MHB Bank of Frankfurt. This acquisition received final approval by German Federal Financial Supervisory Authority (BaFin) and the European Central Bank (ECB) in mid 2019.
More than this, Banks may have trillions of dollars in assets, but they took a significantly long time to get there. Metro Bank, as an example, is the first challenger bank in the UK to gain a high street banking licence and was founded in 2010. Since then, they’ve already listed on the London Stock Exchange with revenues of over £400 million in 2018. In comparison, Barclays bank was founded in 1690, 320 years earlier and only now has revenues of over £21 billion in 2018.
FinTech adoption is at an all-time high internationally and the growth of FinTech’s is significantly faster, even when compared to more established players.
Consumer and market trends matter, because there’s more to investing than a balance sheet.
Please know, the value of investments can go up as well as down and you may receive back less than your original investment, meaning, when investing your capital is at risk.
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