The year of the global election super cycle

The rise of 'Affluent India' # # --------------------------------------------------------------- The key takeaways today: - The year of the global election super cycle - What the rise of 'Affluent India' means for Indian stocks - The world hasn't hit peak oil demand yet - European stocks are more interesting than you might think - Healthcare investors have a growing taste for alternative assets - Briefings Brainteaser: How many companies beat estimates for their earnings in the fourth quarter? Was this newsletter forwarded to you? [Sign up now](. --------------------------------------------------------------- 2024: The year of elections Voters in more than 80 nations and territories — representing more than half the world's population — are expected to head to the polls this year. The US election will be the most consequential not only for the US but for the world, say Richard Haass, the former president of the Council on Foreign Relations, and Timothy Garton Ash, professor of European Studies at the University of Oxford. “The consequences of November 2024 — the US election — dwarf everything else,” Haass says on Goldman Sachs Exchanges, which breaks down the subject of Goldman Sachs Research's latest [Top of Mind report](. “So much hinges on it, and that's because one, of the outsized role, power, and influence of the United States, and two, the gap between the likely candidates.” The elections around the world are also happening at a time of “democratic backsliding,” he adds. Haass argues that voters tend to seek alternatives to liberal democracies during difficult economic times or at times when globalization and technological shifts make it hard for individuals to succeed. “This is a moment where populists have an advantage,” he says. Europe may be going through a similar situation. Regional elections could result in populists building on their recent successes and amassing even more power as they continue benefiting from the challenging economic backdrop and the region's fragmented political landscape, Garton Ash says. “We have nine national European elections,” he says. “The common feature of all but one — Britain — is a growing concern that hard-right nationalist populist parties focused particularly on the hot-button issue of migration are going to do very well and pull the European Union sharply to the right.” --------------------------------------------------------------- India's affluent population is likely to hit 100 million by 2027 India's real GDP is expected to grow at more than 6% every year between 2023 and 2028,[according to Goldman Sachs Research](. In tandem, the wealth of affluent Indians is rapidly growing. By 2027, this cohort of consumers will increase from around 60 million in 2023 to 100 million people. We spoke to Arnab Mitra, an analyst at Goldman Sachs who leads research coverage of Indian consumer brands. Since there's no official description of “affluent,” what kind of data did you use to define this category? We looked at the number of people who take a flight at least once a year; the number of people who order from food delivery services at least once a month; the number of people who file income taxes on sums of more than 1 million rupees (around $12,040); the number of people who have credit cards and postpaid mobile connections. The unique number of people who use these discretionary products and services is somewhere in the region of 50 or 60 million. Then we looked at the income pyramid, which tells us what the top 60 million people earn. It seems to be around an annual $10,000 per person. How is the growth of this cohort affecting Indian stocks? It's quite clear that companies that address this cohort exclusively, or largely, have been growing much faster than companies that address broad-based consumption. So in cars, we compared SUVs to other kinds of cars. Or we compared premium liquor and spirits brands to more mass-market brands. We also looked at hospital or watch companies that exclusively target affluent consumers. All these stocks — they've done significantly better in terms of returns. How will this cohort of affluent Indians grow? The wealth effect is, if anything, strengthening, because it kicks in with a little bit of a lag — when your stock holdings rise in value the first year, you don't feel as good as when they rise for the third consecutive year. That's when you start spending. We extrapolated the growth rate between 2019 and 2023, which is around 12–13%, into the next four years, expecting a cohort of 100 million by 2027. If the wealth effect is strong, it could be even more. --------------------------------------------------------------- Peak oil demand isn't here yet Daan Struyven, Goldman Sachs' head of oil research, at the Goldman Sachs Energy, CleanTech & Utilities conference Even with renewable energy on the rise, oil demand is unlikely to peak anytime soon, according to Daan Struyven, Goldman Sachs' head of oil research, who spoke with colleagues [about the future of energy]( at the Goldman Sachs Energy, CleanTech & Utilities conference. “Global oil demand reached an all-time high in 2023, largely driven by secular strong growth in emerging markets,” says Struyven. He says oil demand is unlikely to peak in the next few years, given that there are roughly 7 billion people outside developed, richer countries who use an average of just three to four barrels per capita per year. That's far less than the 14 annual barrels used by consumers in Western Europe, the US, Canada, and Japan. For this reason, Struyven anticipates that “total energy demand will continue to grow significantly. And I think there will be a role for traditional energy — along, of course, with renewable energy — to meet those growing energy needs.” --------------------------------------------------------------- European equities: More exciting than you might think After a decade of underperformance, there could be new opportunities in European equity markets, [according to Sharon Bell of Goldman Sachs Research](. “Often, European companies are seen as boring,” Bell observes. But this may be an overgeneralization. “The largest 11 companies in Europe make up a quarter of the European market, and they're in fast-growing areas like tech, healthcare, and luxury customer [goods].” She points out that while these companies are not growing as quickly as the American tech heavyweights, their margins are just as high, and their volatility is lower. “While the European economy has its problems, Europe's biggest companies pursue growth around the world,” Bell says. “And that makes them pretty exciting.” --------------------------------------------------------------- Healthcare investors have developed a taste for alternative assets In recent years, investment officers at leading US healthcare systems and hospitals have steadily developed a preference for alternative assets. According to [Turning the Corner]( the sixth annual diagnostic report on not-for-profit healthcare investments by Goldman Sachs Asset Management, institutions are increasingly allocating their unrestricted cash and investment (UCI) pools to assets other than public equities, particularly private markets. The report was based on a survey of 37 leading US healthcare systems and hospitals, with around $379 billion in investments. These “alternative” asset classes mostly include private markets as well as other areas like hedge funds. The larger the UCI pool, the greater the allocation to alternatives. The latest data, as of year-end 2022, closed at 32% in allocations to alternatives, thanks to the largest such year-on-year increase since Goldman Sachs Asset Management began tracking these numbers for its diagnostic reports. “Some of that increase may be based on the public market selloff in 2022, though intended allocation changes revealed later on point to a more secular trend,” the report's authors write — implying that the transformation wasn't related to a one-off event like the 2022 equities selloff alone. In the survey, 41% of respondents expressed an intention to ramp up UCI allocations to alternatives in 2024. In comparison, only 11% said they'd increase allocations to public equities. --------------------------------------------------------------- Briefings Brainteaser: An earnings bonanza Fourth-quarter earnings results for the S&P 500 Index of US stocks have been better than expected. As of February 14, some 360 companies have reported for that period, representing 80% of the S&P 500's total market cap. Of those companies, what percentage reported earnings that substantially beat estimates (i.e. by at least one standard deviation)? A) 50% B) 58% C) 65% D) 72% [Check the answer here](. --------------------------------------------------------------- Goldman Sachs in the news By clicking on these links, you will redirected to external websites that Goldman Sachs does not own or operate. Goldman Sachs is not responsible for the products, services, or content provided on those sites. Please refer to each external website's terms, privacy and security policies for details. 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