How to navigate volatile and inflationary markets
As we head into the summer months, the investment outlook is as mixed as the British weather. Some...
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.
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.”
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.”
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.
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.”
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.”