JPM’s Macklow-Smith: Europe’s luxury brands tap into global middle class


JP Morgan Asset Management’s Stephen Macklow-Smith says Europe’s ability to turn commodities into luxury brands provides cheap access to fast growing markets “wherever a global middle class is emerging”.

The co-manager of the £216m JP Morgan Europe fund explains that while issues with growth in Europe are driven primarily by the domestic economy, quoted Europe is able to tap into faster growing economies.

He says: “If you look at why the European economy is sluggish, it is because the domestic economy is struggling.

“However quoted Europe get around 50 per cent of their revenues from the domestic European economy, with the rest coming from faster growing economies that are all outside of Europe.”

Macklow-Smith details that many European stocks are able to access faster growing economies as a result of the “particular European skill” of transforming commodity products into luxury brands.

He says: “Europe has mastered the skill of turning commodities into luxuries. Their great strength is the ability to make a product that the rest of the world will queue up to buy.”

Nespresso coffee, produced by Nestle, one of the biggest manufacturers of soluble coffee in the world, is an example of such a brand, says Macklow-Smith.

He adds: “Soluble coffee is a commodity and the cost of manufacturing is very low and the price is very low as well.

“How do you turn this into a luxury? You create Nespresso. It is all about the brand, the Nespresso bars and ad campaign with George Clooney.”

The fund currently features Nestle as part of its top 10 holdings as well as producer of the brand Stella Artois, Anheuser-Busch InBev.

Macklow-Smith goes onto argue that concerns over whether a currency collapse in Europe may be a threat to exports currently provides an opportunity for this type of stock.

He says: “If the currency collapses of course it is going to be an issue. However if it doesn’t what you get is companies with a massive export reach and exposure to a burgeoning global middle class that are also cheap because people are worried that the euro won’t survive.”

The recent slowdown in emerging markets currently poses a potential issue for Europe’s export brands, says Macklow Smith, but there is also flexibility to look elsewhere. He adds: “These companies are led by wherever there a global middle class is emerging.”