A once in a generation opportunity
Insync Fund Managers
A revolution in global consumption is occurring. Imagine a world where the centre of economic gravity shifts away from Europe & North America. This presents a staggering $10 trillion consumption growth opportunity over the next decade. This global megatrend has reached a critical tipping point. The rapid expansion of middle-income sectors across developing countries, particularly in Asia, is reshaping the global economy.
Not Just a China Story
Whilst China's middle-class growth is well-known, it is less recognized that of the 1 billion Asians joining the middle class by 2030, 380 million will come from India, the largest contributor to this increase. India's consumer market is set to triple to $6 trillion by 2030, making it one of the biggest consumption stories.
India's consumer class is characterized by a young, geographically dispersed population. It offers significant potential for growth in consumer spending.
In contrast, China's consumer class is older and aging, although more affluent, and is concentrated in cities.
Smaller nations in Asia are still juggernauts when compared to say, Australia. Indonesia's middle-income class is the size of Australia's entire population. Then there is Malaysia, Vietnam, and so on.
Navigating the risks
Investing in the emerging middle-income consumer requires smarter research and better insight than ever before. It also requires strong risk management.
Simply buying a basket of offshore companies with large 'footprints' in these regions is no longer sufficient. Nor is investing directly due to the more risky and volatile nature of local stock exchanges.
International brands face challenges when embracing Guochao due to potential repercussions in both Human Rights and political considerations. Nike and Adidas lost market share in China to locals such as Anta Group as a result. Guochao is especially popular amongst the 270 million Gen Z-ers. They're redefining China's consumer economy and will continue to do so throughout their life stages. This is neither new nor particularly Asian. It shares similarities to the emergence and power of the USA Baby Boomers decades earlier. The preferences and spending habits of this large rapidly growing group are therefore crucial to understand.
With a higher-income middle class estimated to hold 160 million households by 2030, China remains a critical target group for consumer brands. They are driving demand for higher-quality goods and services, from healthcare and education to luxury goods and travel.
Given the dangers and challenges in these markets however, how can an investor benefit without taking on undue risks?
Being focused and careful
Insync's research targets only the most viably attractive companies, focused especially on the increased spending by higher-income middle-class consumers (annual disposable income is $45,000-$100,000 (PPP)). Global companies are usually better placed to then allocate capital to these economies and manage currency and political aspects from a stronger position than fund managers.
Our work has determined that the number of companies benefitting from this trend that can also grow profitably going forward is fewer than what was available pre-Covid. Stock selection is key.
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