Wednesday 25 November 2015
The rise of the Asian consumer: opportunities for Australian investors
Wednesday 25 November 2015
With change comes opportunity
The Australian economy benefitted from a once in a lifetime resource boom that began in the early 2000’s. A decade later, the investment cycle has come to an end. China is pivoting away from mega-investment towards consumption. In this note we look behind the headlines and suggest Australia is uniquely positioned to capture an opportunity to offer Asian consumers what they want.
The rise of China
China’s early growth was fuelled by an infrastructure build out like the world had never seen. Apartment buildings, roads, rail and other infrastructure were built at a frenetic pace. The Government view was to build infrastructure in advance of demand to allow economic growth to flourish without constraint.
In 2015, ten years since the boom began, things have changed. Resource prices have fallen. The AUD has fallen 40% from $1.10 to close to $0.70. And the good times from the resource boom are all but gone. Many economic commentators are expecting a decade of tough times for Australia as resources struggle. We disagree and think Australia can flourish thanks to the emerging Asian Consumer.
The rise of the consumer
Over 3.6bn, or roughly half the globe, live in Asia. After two decades of rapid economic expansion, many Asian economies are now maturing and are expected to grow below recent trends, but above the rate of most western nations.
Current trends leave us confident that China and other populous Asian nations are in the early stages of multi-decade wealth growth. As wealth grows, consumption habits evolve towards more premium goods and services.
Where are the opportunities?
We have identified four key competitive advantages that we believe Australia has over the rest of the world:
- Geography - When it comes to location, Australia has a distinct global advantage. Of the top 20 most populous nations in the world, 13 are located in Asia. The vast majority of Asia is less than a 10 hour plane ride away from Australia.
- Education system - Australia operates one of the most open education systems in the world. 25% of students at Australian universities are international.
- Unique tourism offering - Tourism is a key export of Australia. Why? Australia has unparalleled landmarks, natural features and a temperate climate. Tourism is a major employer in Australia. Tourism spend is over $100bn in Australia and every year, 6.6m people visit Australia, with 43% of those coming from Asia.
- High value branded consumables - Australia has a long history of providing agriculture exports to Asia, most notably beef which is Australia’s largest non-commodity export. Australian products are known for their high quality and oversight.
Equity capital is moving
The stock market will always attract capital to the most efficient uses, in 2015 equity capital is being attracted to businesses who can benefit from rising Asian consumer wealth.
This year we have seen an increasing number of IPO’s exposed to the Asian consumption thematic. The Macquarie Fundamental Funds all participated in the recent IPO of Vita Co. Vita Co specialises in nutrition and supplements and owns brands such as Aussie Bodies and Musashi. The sports nutrition category is one of the fastest growing supplement categories in the world and is a great example of Australian business targeting the Asian consumer.
In addition to new capital being raised, investors are becoming attracted to companies with leverage to Asian consumers. These include baby food company Bellamy’s and vitamin manufacturer Blackmore’s. As their sales grow rapidly, their share prices are reflecting the potential.
China is pivoting away from mega-infrastructure investment towards consistent-consumption. As investors, we are alert to the opportunities that the Asian consumer is providing Australian businesses.