Daily Thematic: Business Happenings in the Americas that May Be “Below the Radar” – Week Ending December 22, 2018 and more

In this briefing:

1. Business Happenings in the Americas that May Be “Below the Radar” – Week Ending December 22, 2018
2. Japan Convenience Stores Still Innovating in a Saturated Market
3. Sri Lanka’s Short Term Outlook Is Hazy: Limited Pockets of Value Present
4. India Politics: Bihar Seat Sharing Sign of Flexible BJP Leadership, Reformed Stance Positive for NDA
5. India: New Governor, New Hope

1. Business Happenings in the Americas that May Be “Below the Radar” – Week Ending December 22, 2018

Highlights of significant recent happenings include:

2. Japan Convenience Stores Still Innovating in a Saturated Market

The following is an in-depth review of the Japanese convenience store (CVS) sector and, in particular, the top three players, Seven Eleven (Seven & I Holdings (3382 JP)), Familymart (8028 JP) and Lawson Inc (2651 JP). Also covered are the smaller firms like Ministop Co Ltd (9946 JP), Poplar Co Ltd (7601 JP), Daily Yamazaki, Cvs Bay Area (2687 JP), Three F Co Ltd (7544 JP) and Secoma which are targets for the Big Three.

The key operational and strategic themes relevant to investors in CVS in Japan:

• The Japanese convenience store sector may have reached saturation but this has just encouraged the top three operators to speed up their quest to take over the remaining smaller chains while pushing into regions where they have fewer stores.
• At the same time, all are looking at new forms of retailing to expand further:
  • All of the top three had previously failed to come up with coherent e-commerce strategies, but this year Seven Eleven and Lawson have launched new ideas that make better use of their existing store networks and could reach national coverage quite soon.
  • Diversification is another strategy to overcome saturation, and Familymart, in particular, is tying with all manner of partners to try and come up with a hit hybrid format to find new growth.
• While competition from drugstores and discount food retailers is a threat, convenience stores will continue to find new sources of growth from e-commerce, hybrid stores and innovative products.

This first report reviews the sector overall and the main players, while a second report looks at the big three CVS operators – which have a combined 91% share of the market – in detail.

3. Sri Lanka’s Short Term Outlook Is Hazy: Limited Pockets of Value Present

Sri Lanka’s economy/stock market have been plagued by issues associated with politics and its external position this year, which resulted in poor stock market performance relative to its frontier market peers.  Select pockets of value can be found in some areas but there are no major positive catalysts for the stock market in the coming years, even though growth is poised to rebound significantly during 2019-2020.  I retain preference for other markets with stronger economic fundamentals such as Vietnam, Egypt and Uzbekistan (initiation note coming soon).

4. India Politics: Bihar Seat Sharing Sign of Flexible BJP Leadership, Reformed Stance Positive for NDA

The seat sharing formula announced over the weekend by BJP and its partners in Bihar is a clear sign of a more flexible and accommodating BJP leadership (Prime Minister and party president). There are total 40 Lok Sabha seats in Bihar and 17 seats each for two parties (JDU and BJP) which had won 2 (JDU) and 22 (BJP) in the 2014 elections from Bihar is a sign of BJP’s great pragmatism and willingness to concede more space to allies. This is not only required for BJP to deal with a more formidable challenge from Opposition, it is also very important to assuage concerns of allies which are getting more demanding.

This decision of BJP also has larger implications, for pre-elections approach of BJP on contentious issues with its existing and potential allies and also for its ability to attract more parties to NDA post elections. Realizing they are dealing with a more difficult political challenge in 2019, the BJP leadership of Narendra Modi and Amit Shah is now willing to change its previously aggressive operating model. It is both good and bad. Because while this might impact the pace of decision making and make it slower, it will also to a large extent eliminate the risk of policy misadventures such as demonetization.

The silver lining is that previous experience of Atal Bihari Vajpayee era (when in 1998-2004, the BJP was leading the Central Govt with only 182 seats in Lok Sabha) suggests that even coalition Govt can work effectively. The process at the Govt will be more consultation based and robust because BJP will be less combative when weaker, which might help. Some of the recent examples like departure of ex-RBI Governor Urjit Patel have proven that these issues could have disastrous consequences and are extremely damaging for markets and the image of Govt. If that changes and is reformed at the top, it will be positive for building up the right investment climate in the country.

5. India: New Governor, New Hope

Shaktikanta Das has been appointed as the new governor of India’s central bank. The new appointment comes as a major boost to the economy and has driven a rebound in the financial markets as well as the Indian rupee. The country’s current account deficit remains a major concern, although these recent developments further affirm India’s attractiveness as an investment destination.