From the frenzied shopping of mainland Chinese tourists in Hong Kong, to the mushrooming of malls from Jakarta to Delhi, signs of a more consumerist Asia are everywhere.
The region has taken to retail
therapy, and each ringing of the
cash register trumpets a potential investment opportunity.
In fact, the phenomenal rise of the Asian consumer has been going on for the last decade, thanks to the region’s growing urbanization, burgeoning middle classes, and rising household incomes. Major shifts in the economic make-up of the world’s three most populous countries—China, India and Indonesia—mean that 42% of the world’s consumers will be in a spending mode for some time to come.
A major economic force
What does this mean for the rest of the world? Hong Kong is an interesting case study. This city of seven million receives some 22 million mainland Chinese visitors a year, and their voracious appetite to consume has placed considerable strain on the limited local resources—most famously maternity wards at private hospitals due to the influx of mainlanders choosing to give birth in the territory.
However, mainland visitors are also the reason certain sectors of the local economy have thrived in spite of the global crisis. Their demand for branded goods has transformed Hong Kong’s retail landscape over the last few years, attracting more and more global luxury brands seeking exposure to high net-worth traffic. The result has been a stratospheric rise in retail property rentals in key districts such as Central. Mainland buyers have also bid up prices of luxury residential properties in the city.
The other side of the coin
China may now be producing 900,000 millionaires every five years, but this would be to paint a misleading picture of what the Asian consumer growth story is all about. The majority of Asians and indeed mainland consumers are not ultra-wealthy, and their rising spending power is a long-term trend driven by a combination of economic prosperity, favorable demographics, and government policies that promote consumption and increase disposable incomes.
In China, for example, subsidy programs and ‘old for new’ schemes have increased household ownership of electronic appliances. In Indonesia, cheap energy, rising wages and falling unemployment have helped stimulate consumer demand. In India, an employment-guarantee scheme is boosting rural wages, while the falling dependency ratio should free up incomes for discretionary items over a couple of decades. In short, more of the Asian household budget is shifting away from food towards leisure, transportation and the like.
Catching the shopping wave
Investors can capitalize on this trend by picking the stocks most exposed to Asians’ changing spending habits. For now, China deserves heavy favorable bias because of the relatively cheap valuations in this market and the greater likelihood of near-term catalysts from favorable policies. Stocks that benefit from rising discretionary spending on services such as telecommunications and internet, as well as from increasing technology-product penetration, are potential winners. Chinese and Indian gold-jewelry retailers are also bound to shine. Of course, valuations change with time, and though the rise of the Asian consumer is very much a long-term theme, successful investment requires a highly selective approach. Investors could do worse than to seek professional advice—as any wise shopper would with any major product purchase.