There is a persistent habit in markets of extrapolating yesterday’s winners indefinitely into tomorrow. For the better part of two decades, the United States has dominated capital formation, technology listings, consumer brands and financial innovation. It became fashionable to believe this dominance was structural and permanent. History suggests otherwise.
Capital is not patriotic. It flows where it is rewarded. When incentives change, behaviour changes. And today we are seeing subtle but meaningful shifts in where capital forms, where households allocate savings, and where operating leverage resides.
Three portfolio holdings capture this rotation in very different ways: Hong Kong Exchanges, Church & Dwight, and Japan Airport Terminal. One sits at the centre of Asian capital formation. One quietly compounds household consumption through unglamorous brands. One benefits from the reopening and reinvigoration of Japanese tourism and retail spend. Together they tell a story about how capital is redistributing itself across regions and sectors.
Hong Kong Exchanges: Operating Leverage to a Structural Shift
The American equity market remains the deepest and most liquid in the world. Yet something important has been happening beneath the surface. The number of listed companies relative to GDP in the United States has been shrinking for years. Private equity, venture capital and sovereign funds have increasingly kept firms private for longer. IPO volumes have been sporadic and often cyclical rather than structural. Capital formation has moved off exchange.
At the same time, Chinese enterprises face a very different reality. After years of property sector stress, regulatory tightening and deleveraging, corporate balance sheets require recapitalisation. Debt must be refinanced. Equity must be raised. And international investors, while cautious, remain interested in selective Chinese exposure. Hong Kong Exchanges sits directly at the intersection of this need.
As the operator of Hong Kong’s equity, derivatives, commodities and clearing infrastructure, it effectively functions as a toll road for capital flows into and out of China. The financial profile reflects extraordinary operating leverage. Gross margins sit near ninety six percent. EBITDA margins approach seventy to eighty percent. Net income margins exceed fifty percent. Few businesses globally operate with that level of structural profitability.
Recent revenue trends show meaningful acceleration. After modest growth in prior years, forward estimates imply a sharp uplift in revenue and earnings. When volumes rise, the incremental margin is substantial. Exchanges are not growth businesses in the traditional sense. They are volume businesses. And when listing activity and trading momentum return, earnings can inflect rapidly.
There is an additional, often overlooked driver. Chinese households remain cash rich. Property, once the default store of wealth, has lost some of its perceived invincibility. Savings pools are deep. When retail investors turn their attention toward equities, they do so with enthusiasm. Momentum behaviour is not uniquely American.
Hong Kong Exchanges is not cheap on a headline price to earnings basis. But valuation must be considered in the context of operating leverage and margin structure. If listing and trading volumes recover structurally, earnings growth will justify the premium. Exchanges are simple businesses at heart. They monetise activity. When activity rises, profitability follows.
Church & Dwight: The Virtue of Boring
Portfolios constructed entirely around cyclical recovery and capital markets optimism tend to suffer when volatility returns. There is merit in holding businesses whose primary virtue is predictability. Church & Dwight is one of those companies. It owns a portfolio of household and personal care brands led by Arm & Hammer. Baking soda is not fashionable. Neither are cat litter, carpet deodorisers or household cleaning products. But they are used every day, in good economic conditions and bad.
Revenue has grown steadily over the past several years. Margins remain healthy. Gross margins sit in the mid forties. EBITDA margins are trending upward toward the mid twenties. Earnings growth has resumed after temporary softness. The balance sheet is manageable, supported by consistent cash generation. Importantly, the company continues to increase dividends over time. The yield is modest, but the growth is reliable. That matters.
In a portfolio containing exchanges, infrastructure and cyclical beneficiaries of tourism and capital formation, Church & Dwight acts as ballast. It does not promise explosive upside. It offers something more valuable: resilience. When volatility strikes, investors rediscover the appeal of companies that sell necessities rather than narratives. The market often underestimates the long term compounding power of slow growers. Church & Dwight is unlikely to double in a year. It is equally unlikely to collapse in a quarter. There is comfort in that.
Japan Airport Terminal: Tourism, Retail and Operating Leverage
Japan’s economic revival has been uneven but tangible. Corporate governance reforms, wage growth and monetary normalisation have altered investor perceptions. One of the most visible beneficiaries of Japan’s reopening and currency dynamics has been tourism. A weaker yen has transformed Japan into a relative value destination for international travellers. Visitor numbers have surged. Domestic travel remains robust. Airports are busy again.
Japan Airport Terminal operates and manages passenger terminal buildings at Haneda Airport. Its business model is straightforward: facilities management, merchandise sales and food and beverage operations. Revenue growth since the pandemic trough has been dramatic. Margins have normalised. Earnings have rebounded. The interesting component is retail. Airport retail carries attractive incremental margins. Once the fixed infrastructure is in place, additional passenger volume flows through with high profitability. Merchandise mix matters. International visitors tend to spend more per passenger. Currency effects amplify this dynamic.
Valuation is not stretched. The company trades at a reasonable earnings multiple relative to its recovery trajectory. Dividend yield remains modest but stable. Balance sheet metrics are manageable. Airports are infrastructure assets with cyclical overlays. They benefit from secular travel growth but exhibit short term volatility during economic shocks. Japan Airport Terminal combines these characteristics with exposure to inbound tourism trends that appear durable rather than fleeting.
The Common Thread: Capital Allocation and Behaviour
At first glance, an exchange operator in Hong Kong, a baking soda manufacturer in the United States, and an airport terminal operator in Tokyo share little in common. Look more closely. All three monetise behaviour.
Hong Kong Exchanges monetises trading and listing behaviour. When Chinese enterprises recapitalise and retail investors deploy savings, volumes rise.
Church & Dwight monetises habitual consumer behaviour. Households clean, wash and care for pets regardless of the macro narrative.
Japan Airport Terminal monetises travel and retail behaviour. Tourists shop and dine as they pass through infrastructure nodes.
Investing often reduces to understanding behaviour and incentives. Where is capital flowing? What are households doing with savings? Which sectors enjoy operating leverage to small changes in volume? The United States will remain central to global markets. But capital formation is becoming more geographically dispersed. Asian exchanges stand to benefit. Japanese tourism and retail infrastructure are capturing renewed flows. Defensive consumer franchises continue compounding in the background. Portfolios that recognise these shifts do not need heroic assumptions about perpetual growth. They require only a willingness to observe that cycles turn and behaviour adapts.
TAMIM Takeaway
Markets reward flexibility. The narrative of permanent American dominance in capital markets is being tested by structural shifts in private equity, Chinese recapitalisation needs and Asian retail flows. Hong Kong Exchanges offers operating leverage to that shift. At the same time, prudence demands ballast. Church & Dwight provides steady compounding in a portfolio otherwise exposed to cyclical and capital market themes. Japan Airport Terminal captures the resurgence of tourism and retail spending in a country undergoing economic normalisation. Together they reflect a simple principle: follow the behaviour of capital and households, not the noise of headlines. Exchanges, airports and even baking soda can tell you more about the direction of markets than the latest technology slogan.
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Disclaimer: Hong Kong Exchanges (HKEX), Church & Dwight (CHD) and Japan Airport Terminal (JAT) are held in TAMIM Portfolios as at date of article publication. Holdings can change substantially at any given time.