125. Making money from snacks, lifts and Vietnamese dairy companies
Charlie Dutton, manager of Ninety One Asia Pacific Franchise, tells us why Asia is no longer a play...
Last month, leaders from 15 Asia-Pacific nations sealed one of the biggest trade deals in history.
The Regional Comprehensive Economic Partnership (RCEP) took eight years of negotiations (let’s hope Brexit doesn’t take another four!), but it is the first ever to bring together China, Japan and South Korea, and marks a major step forward for economic integration in the region.
Lee Hsien Loong, Singapore’s prime minister, said: “At a time when multilateralism is losing ground, and global growth is slowing, the RCEP shows Asian countries’ support for open and connected supply chains, freer trade and closer interdependence.”
Commenting on the deal, Edmund Harriss, co-manager of Guinness Asian Equity Income fund, said: “The region itself is becoming more and more self-supporting. The recent trade agreement is, we think, very important in this regard. The RCEP was years in the making and covers the members of the Association of South East Asian Nations (ASEAN, which includes Indonesia, Malaysia, Singapore and Thailand and also emerging nations including Vietnam and Cambodia) together with China, South Korea and Japan.
“This area covers almost a third of the world’s population and could add US$200 billion annually to the world economy by 2030. The key to this, as in any trade agreement, is the removal of frictions such as tariffs and administrative constraints. The rules on country of origin for a manufactured good, for example, differ around the region and by consolidating a dozen variations to one common acceptable method of determination can simplify the manufacture and movement of goods. India withdrew from the RCEP negotiations because it feared a flood of Chinese imports would swamp its domestic manufacturers, but the Agreement leaves the door open for them to join later.”
There are a number of supportive structural trends shaping the opportunity in Asian equities. Digitalisation of the economy – like elsewhere in the world – is one. Demographics is another.
According to Barings’ SooHai Lim, in the next ten years, Asia is expected to have the largest middle class population in the world and become the largest middle class market in value, led by both China and India. Knowing who this key Asian middle class is, and what they want to buy, is key for companies’ growth prospects—and for uncovering the companies best positioned to benefit from this structural trajectory.
“Arguably, the most influential Asian middle class today is the Chinese millennials, who account for roughly 25% of the population,” he said. “As this generation of Chinese millennials has aged into its prime consumption years, the effects on the market have been significant. Compared to Gen Xers, millennial consumption of luxury goods, from handbags to clothing to luggage, is expected to increase notably in the future, by as much as 50%. In terms of distribution channels, having an online/e-commerce presence is crucial—as unsurprisingly, Chinese millennials are very comfortable with e-commerce.”
Charlie Dutton, manager of Ninety One Asia Pacific Franchise, believes the emergence and recognition of regional brands is also a big theme. “Companies like Amore Pacific and LG Household and Healthcare – South Korean cosmetics names – are now competing with the likes of Estee Lauder in China,” he said. “Kweichow Moutai is now also the largest liquor company in the world – bigger in terms of market capitalisation than Diageo.
“We are also seeing an increase in local listings of global brands like Colgate India and Nestle Malaysia – an area that has expanded over last decade.
“Asia is no longer a manufacturer for the rest of the world. Niche products have evolved and the level of research and development in China alone was higher than in the US this year. Asia is full of industry leaders and offers plenty of opportunities.”