As Asian countries become richer, they have been transitioning towards consumption-based economies, translating higher per capita income into increased spending across goods and services. Today, there are about 4 billion middle-class consumers according to the Brookings Institute and more than half of them live in Asia.
The Asia region has long been the engine of global growth, with its low-cost manufacturing hubs and export-led economies benefitting from the globalisation of supply chains. As Asian countries become richer, they have been transitioning towards consumption-based economies, translating higher per-capita income into increased spending across goods and services.
Today, there are about 4 billion middle-class consumers according to the Brookings Institute and more than half of them live in Asia. By 2030, Asia will add another billion people to the ranks of the consumer class (defined as living in a household that spends at least USD 11 per day per person). We believe the opportunity to participate in this growth is a multi-decade opportunity.
While China and India, with their large and upwardly mobile workforces, have already been recognised for their growth potential, we find that other Asian countries such as Indonesia, Thailand, Vietnam and the Philippines also provide good hunting grounds for investing into the rising consumption trend.
Universal Robina Corporation (URC), the largest food and beverages company in the Philippines, is a good example of a dominant, home-grown Asian consumer franchise. While the business has faced several challenges in the past, the appointment of an ex-Proctor & Gamble professional manager, with a high degree of autonomy to reshape the business, was an encouraging start to its turnaround. The group broadly gained market share amid the tough Covid environment last year, and we believe it should come out of this difficult period in a stronger position.
Another example of a dominant consumer franchise is Central Pattana, a market leader in the retail shopping mall sector in Thailand. The company has many of the qualities that we typically look for in a business. It is owned by a reputable and trustworthy family, but run by professionals, and it has a strong franchise and a good long-term value-compounding track record. With 34 shopping malls (15 of them in Bangkok), we believe it is a good proxy for the emerging middle classes and growing rural consumption.
Meanwhile, as incomes continue to grow, Asian consumers are starting to move up the ladder to buy more premium products, or buy discretionary products (goods that are non-essential but desirable) they could not previously afford. Beneficiaries of this trend include Midea Group, China’s largest home appliances company; Shiseido, a leading Japanese cosmetics company; and Colgate-Palmolive India, an oral care company with a growing portfolio of premium products.
As bottom-up investors, we construct our portfolios company by company and from the bottom up. However, that is not to say that there aren’t powerful structural themes and secular trends that underpin the businesses we own – from the growing middle class to rising consumption, an ageing population, better healthcare and technological disruption, to name a few. We look for these rather obvious tailwinds (and try to avoid the headwinds), just as much as anybody else.
Nonetheless, it’s tough to make predictions, especially about the future, as the saying goes. As such, our investment philosophy is focused on buying high-quality companies and then holding them for the long term. To us, it is a very simple idea: whatever happens, we believe the best companies will either prosper in easier times or, contrarily, suffer the least in adversity. As our long history of investing in these markets seems to suggest, owning high-quality companies in our portfolios means that macro headwinds tend not to result in a permanent loss of capital. In our experience, high-quality businesses usually recover more quickly and may even gain advantage in a more difficult environment.
Source: Brookings Institute. Company data retrieved from company annual reports or other such investor reports. Financial metrics and valuations are from FactSet and Bloomberg. As at end September 2021 or otherwise noted. Note: Reference to specific securities (if any) is included for the purpose of illustration only and should not be construed as a recommendation to buy or sell the same. All securities mentioned herein may or may not form part of the holdings of FSSA Investment Managers’ portfolios at a certain point in time, and the holdings may change over time.
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