Chinese and Indian consumers provide a strong boost for investors
19 Oct 2012
Consumers in the BRIC countries will continue to keep spending to the tune of about $500bn annually, generating tremendous opportunities for investment products catered to the needs of this growing segment.
Speaking at the SALT conference in Singapore today, Stephen Roberts, Partner at Horseman Capital Management said the buying power of consumers in Brazil, Russia, India and China may total as much as $10trn in the next decade: "China and India will become a big part of the pie in terms of spending and numbers. For institutions seeking to capitalise on this trend, some of the best plays on China are European stocks, especially those with a big brand base in Greater China. Companies such as Richemont, LVMH and Ferragamo are among European stocks that are benefiting from demand in China.
"What's proved to be very powerful is the travelling Chinese, who get on airplanes because they want to walk down Fifth Avenue and purchase luxury items in Europe and America. This traveling consumer is providing a very powerful macroeconomic tailwind."
Samir Arora, founder and fund manager at Helios Capital Management, added that the consumer is also a powerful story in India. "For many in the Indian financial industry, and in the private sector, banks and financial companies, consumer loans are a very big part of the growth, he added.
"The consumer is not only strong because of the massive growth in earnings over the last five years, they also had positive wealth effect. They own real estate and bank deposits and they don't invest in equities. They had less than 2% of their portfolio in equities. So Indians basically haven't suffered from the financial crisis."
Investors typically have the misconception that Brazil is just a commodities market whereas in reality, that sector forms only 50% of its GDP, the rest is represented by services and consumption, according to Fabio Dallacqua, Managing Partner, Constellation Asset Management.
"Consumption is actually the big story in Brazil today and a few years ago, if you think about priority consumption of the population, people would talk about the flat TVs, cellphones, cars.
"With creation of the middle class, Brazil nowadays is really now a middle class country, and in terms of consumption, it's housing, healthcare, financial service mainly insurances, healthcare plans and that's happening across the country."
Russia as a market strongly resembles Brazil, said Sean Glodek, Director at Russian Direct Investment Fund, a $10bn private equity fund set up by the government a year ago. "It does have a meaningful exposure to commodities but you really have a fundamental growing consumer class, the middle class has tripled in the last five years"
The Russian fund is seeking to invest more in the healthcare sector, having just closed a transaction to invest in a healthcare clinic network there, focusing on prenatal and pregnancy delivery. "You can charge very high prices for delivery quality service and attracting people who would otherwise travel outside Russia to get quality healthcare to now stay in Russia and it's a booming market. The margins are very high and the growth is meaningful."
Author: Wing-Gar Cheng