Tapping into Asia’s booming consumer

Among the biggest changes to emerge in the investment landscape over the past 10 years is the vast consumer market in Asia, according to Sharat Shroff, manager of Matthews Asia Pacific Tiger.

“By 2020, Asia is expected to have a middle class of about 1.7 billion—far more than North America and Europe combined,” he said. “China today has the largest middle class in the world and, by 2022, urban household income is still expected to double from 2012 levels.

“However, it is not just the number of Asia’s middle class consumers that is impressive but their spending power, which is also expected to double that of North America and Europe combined by 2030.”

We asked five Elite Rated managers which stocks they like to take advantage of this structural change.

Jupiter Asian Income

Manager Jason Pidcock says that the increased freedom to travel, and higher disposable income, means that overseas holidays are far more accessible to Chinese citizens than they once were. “I believe the shift toward consumer spend on experiences, rather than material goods, is one of the biggest tailwinds driving Asian equities today,” he said.

“Sands China is currently one of the largest positions in my portfolio. As Macau’s largest casino operator, it has more than 13,000 hotel rooms on the island, and continues to invest to protect market share. The company recently reported strong top-line growth and I believe it has the potential to grow its dividend.”

Rathbone Strategic Growth Portfolio

In a similar vein, David Coombs holds three Asian stocks in his multi-asset fund. One of these stocks is TravelSky Technology Limited, the Chinese provider of information technology solutions for China’s aviation and travel industries. Servicing the likes of commercial airlines and airports, travel agencies, travelers and cargo shippers, the company conducts electronic transactions and manages travel-related information.

David said: “TravelSky has an airline ticketing monopoly. It gets a fee for every ticket that is purchased though its system. I’ve owned it for around 12 to 18 months and its a great way to invest in the growing consumer trend for travel and tourism.”

First State Greater China fund

Manager Martin Lau believes that rising incomes and consumption upgrading (trading up to premium quality products) should continue to drive China’s economic growth, despite concerns of a slowdown.

He invests in China Mengniu Dairy, one of the two largest dairy companies in China, which he says is well-positioned to tap into this ‘premiumisation’ trend. Mengniu has long-term strategic partnerships with European companies: Arla Foods since 2012 and Danone Group.

As incomes continue to rise, the growing middle-class appetite for premium yoghurts, ice-creams, beverages and other non-dairy health products, particularly with the launch of healthier versions and local flavours, should provide a structural tailwind for Mengniu.

Stewart Investors Asia Pacific Leaders

Another manager favouring a similar part of the market is David Gait. He holds Vitasoy, a Hong Kong-based producer of soy milk, tea and tofu, with most of its sales now in Mainland China. David says that the 70-year old family-owned company’s products offer a healthy and sustainable source of protein and calcium. “In the context of rising protein demand, alongside water scarcity in China, soy-based foods are uniquely well-positioned,” he said. “The company should continue to benefit from rising awareness around health and wellness as well as the environmental impact of our food choices.”

JOHCM Asia ex Japan

Away from China, managers Samir Mehta and Cho-Yu Kooi have Nestle India as one of their holdings. After two years of disruption – following the demonetisation and introduction of a Goods and Services Tax in India – the managers believe there is evidence of a recovery in consumer demand.

“In the last few years, and under new management, Nestle India’s strategy has turned 180 degrees, growing volumes and market share with the help of innovation (introducing 42 new products),” they commented. “Commodity prices, particularly the ones most relevant to Nestle India such as milk and wheat, have eased across the globe, enabling the company to take the higher costs from oil-related packaging products in its stride, without feeling any pressure on margins. In our view, we are on the cusp of change. If the company does execute on its plans, it is quite feasible that in the next four years revenues and earnings double from where they were at the end of 2017.”

This article is provided for information only. The views of the author and any people quoted are their own and do not constitute financial advice. The content is not intended to be a personal recommendation to buy or sell any fund or trust, or to adopt a particular investment strategy. However, the knowledge that professional analysts have analysed a fund or trust in depth before assigning them a rating can be a valuable additional filter for anyone looking to make their own decisions. Past performance is not a reliable guide to future returns. Market and exchange-rate movements may cause the value of investments to go down as well as up. Yields will fluctuate and so income from investments is variable and not guaranteed. You may not get back the amount originally invested. Tax treatment depends of your individual circumstances and may be subject to change in the future. If you are unsure about the suitability of any investment you should seek professional advice. Whilst FundCalibre provides product information, guidance and fund research we cannot know which of these products or funds, if any, are suitable for your particular circumstances and must leave that judgement to you. Before you make any investment decision, make sure you’re comfortable and fully understand the risks. Further information can be found on Elite Rated funds by simply clicking on the name highlighted in the article.