Fidelity market commentary

Consumption in Asia continues to grow. In China, this tendency is particularly transparent. According to China’s latest national population census, more and more people move to urban areas. This will further promote consumption. Catherine Yeung, Investment Director Asia (ex Japan) at Fidelity International, explains how consumption evolves in the Asian countries and which sectors will be beneficiaries:

“There is good reason to remain optimistic about consumption trends across product categories in Asia Pacific ex-Japan. There is more mature consumer behaviour in Australia, Korea and Taiwan, but more robust consumption growth in China, Hong Kong (driven by China consumers), Indonesia, Thailand and India. Especially China is a good example for consumption on the rise. As the current China census shows, almost fifty percent of the population live in urban areas – compared with the 2000 population census, the share of urban residents increased by nearly 14 percentage points, demonstrating a higher level of urbanization as a result of economic and social development since 2000. This is good for consumption, since cities offer a wider range of products and services than rural areas. The “Chinese consumption story” is well on its way to becoming one of the most important investment themes of our time.

The Chinese government has realized that the economic model that was successful over the past 10 years will not work indefinitely. They recognize that the country can no longer rely on cheap market-grabbing exports and are trying to re-balance the economy towards domestic consumption. Another trend which fosters consumption is the de-regulation of the (organized) retail industry. However, there is a strong contrast between China and India, and not all sectors behave the same everywhere. Discretionary spending growth in India slows compare with China, while China has been raising minimum wages since 2010. Aspiration for luxury, foreign products as local currencies appreciate and as wealth created from wages growth.

The rise of the Chinese consumer doesn't only benefit mainland China but a number of economies around the region – for example, Chinese tourists spending more in Taiwan and Hong Kong or Korean companies expanding their presence and as such, increased sales growth in China itself. Additionally, and due to its economic growth rates and population sizes, consumption growth rates are expected to rise in Indonesia and India. For example, India is likely to follow China with a lag of 5-10 years.

Consumer staples should continue to grow on better livelihood on the back of economic growth and market share gains by industry leaders (consolidation), but it seems discretionary could grow faster than staples on the wealth effect. Discretionary consumption (rather than staples), autos, consumer technology products and financial services are the most profitable sectors and best ways to play this growing consumption story. Health care and consumer services are other beneficiaries.”