McKinsey published a report earlier this week entitled "The New Global Competition For Corporate Profits".   The report "projects that the global corporate-profit pool, which currently stands at almost 10 percent of world GDP, could shrink to less than 8 percent by 2025—undoing in a single decade nearly all of the corporate gains achieved relative to the world economy during the past 30 years".

By referring to a drop in corporate profits as a percentage of GDP from 10% to 8%, and by marking the time-frame as 2025, one could be lulled into complacency and consider this to be little more than an academic exercise, not relevant for trade-able ideas today.  But one would be horribly wrong!!  The impacts of global forces especially in and among Emerging Market countries is already impacting corporate profitability in a meaningful way.

While many examples abound, one just caught my eye last night regarding anticipated smartphone sales in 2016.  The following report was released by TrendForce last night: "TrendForce Finds 2016 Global Smartphone Shipment Growth Down to 5.8% and Expects Even Apple to Face Single-Digit Growth Next Year.

One section of the report is subtitled: "Rising Chinese brands are bringing in a new round competition that will phase out some weaker players".

This highlights the ideas made in McKinsey's report about new local competitors representing formidable headwinds for incumbent players.

From an investment perspective, the focus ought to be on finding multi-national companies that are established 'incumbents' and who are already leveraging operating efficiencies, economies of scale and global interconnected footprints that allow them to maintain and grow market-share.  Equally of interest ought to be new local competitors who will leverage local indigenous advantages in order to establish themselves as viable long-term players against larger, more multi-national incumbents.  (The challenge, of course, of finding countries with acceptable corporate governance standards underlies the search!)

McKinsey's report is clearly today's business, and with equity markets having given up much ground in recent weeks, the valuation search has become more compelling.
Will keep you posted as our search progresses.

If you have any questions, or comments, please keep them coming in!!

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(Please note: This article is solely meant to be thought provoking and is not in any way meant to be personal investment advice. Each investor is obligated to opine and decide for themselves as to the appropriateness of anything said in this article to their unique financial profile, risk tolerances and portfolio goals).
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