Asian consumers' spending power a long-run 'sure bet'

PHOTO: Asian consumers' spending power a long-run 'sure bet'

Amid today's worrying uncertainty on world markets, one investment idea is practically bound to reap long-term returns.

At least, that is according to a top investment adviser at one of Europe's oldest private banks - Lombard Odier - who believes the Asian consumer growth story is a sure-fire winner.

Stock markets in emerging economies will likely continue to be more volatile than their developed market counterparts, so there will be "hiccups" along the way, said Lombard Odier's head of investment solutions and client advisory, Mr Todd James.

But in the long run, investors would do well to bank on the growing salary and spending power of the Asian consumer, he added.

According to the Organisation for Economic Cooperation and Development, Asia's gross domestic product per capita - a measurement of a country's standard of living - is expected to jump five times on average by 2050, from 2010 levels.

Speaking at a client briefing in Singapore last week, Hong Kong- based Mr James said investors wishing to capitalise on this trend should buy into Asia-focused companies in areas such as technology, communications, luxury goods, banking and insurance. And this is as good a time as any, he added, as the recent Asian stock market sell-off has made valuations very attractive.

"It's not about finding Asian companies, it's about finding a global company whose growth, revenues and underlying customers come from emerging markets, particularly Asia," he noted.

This is especially so in the luxury goods sector, he said. Prada, for one, now considers the Asia-Pacific its main market, while Gucci expects the region to be its main market within five years.

"Emerging consumers are expected to account for 65 per cent of luxury goods sales by 2020, from 44 per cent in 2010, and the Chinese will become the leading luxury consumer by 2014, outpacing the Japanese and Americans and contributing 40 per cent of the sector's growth over the next 10 years."

The luxury goods sector is also attractive because of the high barriers to entry, Mr James added.

"It's not easy to develop a long-term brand and long-term quality so it's difficult for new companies to enter that space," he said. "So that's why luxury goods is a sector where the companies have strong pricing power and superior profitability."

Companies such as Coach and LVMH would be among the top names investors should consider, he said.

Retail credit is another interesting sector to watch, he added.

"Many people in emerging markets are still unleveraged and they're going to be looking for car loans, personal loans and the expansion will be unprecedented."

But since a sharp rise in consumer loans tends to bring its own set of problems as well, investors should focus on companies that manage their risks well. OCBC, China-based ICBC and Thai bank Kasikorn are among those with good credit risk profiles, positioned well to cross-sell their banking products to their expanding consumer bases.

Insurance will also enjoy a sharp expansion in emerging markets as the population gets richer and older. Companies like AIA, Prudential, Samsung Life and Ping An are good bets, he said.

In the technology and communications space, he cited SingTel, China Mobile, Tencent and Samsung as poised to benefit from long-term growth of the region.

"Mobile phone companies tend to be strong, solid and have great cash flows and dividends," he said. "In emerging Asia, the penetration of smartphones and Internet access is one-third that of the developed world, so there's exponential growth potential. E-commerce and social networks will also benefit."

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