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Five stocks to play the onshoring boom
by Danielle Levy on Aug 28, 2013 at 13:34
Fund managers say the trend for manufacturers to move their operations back to the developed world has much further to run, and here are the stocks they expect to benefit from the onshoring boom.
A series of leading fund managers believe the trend towards onshoring and nearshoring production back from emerging to developed markets has much further to go.
Onshoring is being driven by a combination of factors, not least rising wage inflation and declining competitiveness in emerging markets, while a number of developed nations are also benefiting from more competitive labour costs.
The US can also boast of falling energy prices, driven by the shale revolution, creating a renaissance in its manufacturing sector.
It is a trend that Sarasin & Partners feels so strongly about that it has introduced a new investment theme entitled ‘Going Glocal’, seeking the net beneficiaries of manufacturing relocated closer to end markets.
Sarasin chief economist Subitha Subramaniam does not view it as a reversal of globalisation, but rather a more subtle shift to put supply closer to demand, marked by corporates moving research, development and manufacturing closer to each other and local markets.
Here we highlight five stocks which stand to benefit from the nearshoring boom.
Sarasin global analyst Max Burns says Nissan has been ahead of the curve in terms of nearshoring in the US, relocating production from Japan to Tennessee and Mexico.
He is also positive on the company’s decision to tailor production to local markets by relaunching Datsun as an emerging market-specific brand. 'Nissan is a margin story. It has moved to a cheaper production zone and has benefited from a cheaper plant.’
2) Enterprise Products Partners
Threadneedle’s A-rated Stephen Thornber anticipates the natural gas and crude oil pipeline company will benefit from production growth in the US. ‘As production grows you have to build more pipeline. There is good visibility in revenues as pipelines are backed by new contracts and there is growth on top of that,’ he explained.
Sarasin fund manager Jennifer Ramsey highlights the UK-based meat producer as a beneficiary of the horse meat scandal that rocked the UK earlier this year, as the firm can prove the provenance of its products. ‘They can go to the negotiating table with UK supermarkets and prove the provenance of their products. They will be able to negotiate a lower rate of decline in the production price and potentially more volume,’ she explained.
Threadneedle’s Thornber is backing the chemical company as a beneficiary of cheap natural gas in the US as LyondellBasell is able to access cheap gas and convert it to polythenes. He is also bullish on the company’s dividend policy. ‘LyondellBasell is committed to returning excess cash through special dividends every quarter. It has returned a huge amount of cash to shareholders.’
5) Union Pacific
Threadneedle fund manager Stephen Thornber is holding US railway Union Pacific, which he expects stands to benefit from hauling shale oil across the country, alongside the kicker of an improving economic backdrop in the US.