The Asian Consumer

Among the specific secular themes that have featured within the equity component of our portfolios over the past few years has been one that focuses on the Asian consumer. The manager that we have chosen to exploit the opportunities presented by this secular trend is regional specialist Coupland Cardiff. From a conference call with their Singapore-based fund manager Rory Dickson this week, it is clear that there has been wholesale selling across the Asian region in recent months, as volatility has abounded, but his relative performance has held up well. The management of the various underlying portfolio companies are seeing positive numbers in their business and fundamentals appear sound.

Domestic consumption in Asia is a compelling structural growth story. As can be seen from the chart, Asia still faces a long runway of growth to catch up to more developed world economies, whether we look at economic indicators like PPP per capita, or consumption of basic goods, such as toothpaste.

In places like India, consumer sector growth is re-accelerating, driven by demographics, urban consumption, policy support for infrastructure and unwinding of bureaucracy. Moreover, Coupland Cardiff contends that China is not all doom and gloom: the consumer has evolved, with staples now well penetrated and anti-corruption and austerity having changed the consumption landscape. E-commerce is cannibalizing traditional retail and growth in the use of e-commerce by “millennials” is massive. Increasingly savvy and sophisticated, China’s consumers are drawn to premium brands, services and experiences, which are all accessed via the likes of Tencent’s WeChat et al.

There is still plenty of room for expansion, however. Online retail spending per capita in the US is 2.8 times higher than that in China, 18 times that in Thailand, 23 times greater than Malaysia, 63 times higher than Indonesia and 179 times larger than the Philippines. Globally, studies suggest that B2C online retail sales tend to take off when PP-adjusted incomes hit US$10,000 p.a. – a level that Indonesia is fast approaching and which China has surpassed some while back.

With Asian markets having weakened significantly on a 1 and 3 year view, broad valuations are cheaper than for some considerable time. Yet the quality High Growth Leaders, Established Franchises and Tightly held Dominators that the Coupland Cardiff fund focuses on have held up better that the average. Nevertheless, whilst this is not the most bombed-out or value part of the market, we believe that the growth compounding characteristics are still appealing and this is a theme that has many years left to run.