There are a couple of different ways to approach buying shares on the ASX. You can look into individual companies, build an opinion and perform some valuations on what you think they are worth. Or you can look at the bigger picture first, examining the overall economic outlook and trends, before diving deeper into a favourable area to select individual companies.
These 2 strategies are what are know as bottom-up and top-down approaches to investing.
I think there’s value in both approaches. However, today I am going to take the top-down approach and point out a couple of long-term trends, also known as tail winds, which might interest you – maybe even enough for you to dig a little deeper into some ASX companies benefitting from them.
We all need to eat. And there are more of us every year. But the trend doesn’t stop there.
As China and India grow and develop their middle class, food consumption is expected to swell. This means greater food consumption of higher quality, protein-dense foods. China is the largest importer of Australian food, with imports valued at $5.3 billion in 2016. Additionally, the value of processed foods exported to China increased by more than 40% between 2015–2016. I can see this continuing to grow thanks to the China-Australia Free Trade Agreement, which provides China access to Australian processed food with up to 25% lower tariffs, when compared to countries without a free trade agreement.
There is also an inverse relationship between Australia’s net food exports and the exchange rate of our dollar (AUD). This means that as the AUD drops lower (as it has been), demand for our food exports increases, thanks to its relatively lower price.
Back in Australia, the Department of Agriculture, Water and the Environment has found some interesting trends in Australia’s food market between 1988–89 and 2016–17. Over this time, household food consumption has increased by an average of 2.4% per year, with the largest driver being population growth.
This shows that Australia’s food industry is seeing growth both domestically and through its exports, with exports making up on average 65% of Australia’s agricultural production.
There are many companies trading on the ASX which are benefitting from the growing demand in food. In my opinion, a few of the more interesting ASX shares in this space are Freedom Foods Group Ltd (ASX: FNP), Tassal Group Limited (ASX: TGR) and Rural Funds Group (ASX: RFF). Each of these companies is benefitting from this tailwind and all 3 offer interesting ways to invest in food on the ASX.
Another growing trend is the ageing of Australia’s population. According to the Australian Bureau of Statistics (ABS), the median age in Australia has increased over the last 20 years. This is due to sustained low fertility and increasing life expectancy, with the proportion of the population aged 65 and over growing. With this in mind, there are a few industries that look set to benefit from this changing demographic.
Think about the increase in retirees. An annuities provider such as Challenger Ltd (ASX: CGF) look set to benefit as more Australians will look for a guaranteed income throughout retirement.
Additionally as people age, more will require assisted living, or nursing homes – an area Japara Healthcare Ltd (ASX: JHC) has been investing in by opening more homes and beds across Australia and New Zealand.
Not to mention the slightly more morbid thought that everyone will die one day. According to the ABS, Australia’s projected deaths are set to increase by 2.4% until 2026 and 2.1% thereafter until 2050. A funeral provider such as InvoCare Limited (ASX: IVC) has been preparing for this by making acquisitions to grow its presence in this industry.
These are just 2 examples of long term trends which, with a little digging, could yield some great investment ideas.
Of course, there are many more trends that companies are taking advantage of on the ASX, along with many more companies that are also taking advantage of the trends mentioned above. The trick is to find the company you think is likely to benefit the most out of it, and then hold on for the ride.
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Motley Fool contributor Michael Tonon owns shares of Challenger Limited, JAPARA DEF SET, RURALFUNDS STAPLED, and Tassal Group Limited. The Motley Fool Australia owns shares of and has recommended Challenger Limited and RURALFUNDS STAPLED. The Motley Fool Australia has recommended Freedom Foods Group Limited and InvoCare Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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