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Consumption: Asia’s Multi-Decade Story

Some investors may consider the consumption story in Asia as a recent short-lived, high-growth theme. However, this is a common misconception. The consumption theme we’ve seen emerge in Asia is not just a one- or two-year story: it’s a multi-decade opportunity for investors. This story still holds untapped potential due to a sustained trend for premiumisation, in addition to low penetration rate of goods and services in Asia.

In China, a pivot in policymaking created a new “first” for the country—the Five-Year Plan omitted guidance on the level of economic growth and addressed the quality of growth instead. In our view, this signals a new era in China’s economic development. Attention now falls on the very companies that grew quickly, that must now align businesses with China’s new focus on aspects that promote quality growth, such as minimum wages and working conditions. We’d expect profits to be impacted in an interim adjustment period as businesses adapt to new laws, though this period could last longer than most expect. It’s unlikely we’ll see drastic changes in market sentiment, though we’d expect to get some clarity on the direction of government regulations as we move through the fourth quarter.

Despite the policy-induced market volatility, we believe that Asian economies are fertile ground for investors, and can offer opportunities within the consumer space. For example, while consumer markets are sizeable in South-East Asia, the consumer sector is considered to be by and large underpenetrated, due to the sector’s size relative to the size of the population.

Changing Consumer Dynamics Maintain Momentum

Rapid changes in industrialisation and urbanisation, combined with rising wages, population growth and favourable demographics, have brought the emergence of a new consumer class with greater disposable income and purchasing power. The impact of these changes will be far-reaching, while both the direct and indirect effects will be felt by most countries and sectors in the region. That said, the absolute penetration rate of goods and services remains low.

The global pandemic has accelerated new consumption behaviours that are shaping up, offering investors an opportunity to tap into societal shifts such as digital adoption and high-end local brands, while companies become more globally competitive. Driving these new trends are a new younger generation of consumers have come to market, in addition to silver consumers who are living longer with an amassed wealth, who are driving demand for home automation technology, on-demand services and experiences.

Young Patriotic Consumers Continue to Power Local Brands

In China, while mass testing and movement restrictions have kept COVID-19 outbreaks largely under control, a recovery for consumption has been slower than expected due an uptick in cases earlier this year in January and February, and again over the summer over August.

Looking further ahead, on the back of loosening monetary policy, we believe private consumption is expected to show a gradual recovery in the first quarter of 2022, if the economy recovers from a recent uptick in COVID-19 cases.

In light of the State Council’s remit on elevating citizens in the name of common prosperity, sentiment towards luxury spending could be temporarily impacted in the near term. That said, China’s common prosperity campaign will likely increase the middle-class population, and encourage consumers to continue trading up to buy higher-priced and quality goods, potentially generating more interest in local brands that are trying to penetrate the market.

Surrounding industries such as sportswear and equipment manufacturing companies, and sports event organisers are likely to be positively impacted by this policy change. This move synchronises with the guochao trend, which capitalises on young Chinese citizen’s pride in their national identity, particularly for sportswear and apparel brands that meet a steady demand for streetwear.

Local, premium labels appeal to a young, patriotic generation who are proud of China’s rapid rise to the world’s second-largest economy. Within this subset lies several domestic names which are steadily expanding, such as Li Ning—a prominent and eponymous sports brand created by the Olympic triple-gold medallist. Despite competition from major sports brands, Chinese consumers have gradually embraced domestic names.

The biggest issues facing investors are China’s regulatory requirements, and the volatility it could bring to markets. While impactful, we believe these regulatory changes will ultimately support the Chinese economy in the long run, through sustainable and high-quality growth. Companies will likely be given more direction in the coming months as regulations fall into place, and with it, some room to continue to develop, innovate and lead a new consumer-driven economy.

India’s COVID-19 Considerations Support Consumption

Elsewhere in India, a resurgence in coronavirus cases took some sheen off the growth story. Yet in the absence of a nationwide lockdown—as India did upon the initial outbreak of COVID-19 last year—the economy has fared much better against other Asian countries. Notably, India has started to treat the Coronavirus disease as an endemic. With moderate levels of transmissions and various stages of vaccination levels, India is gradually learning to live with the disease, evidenced by a pick-up in overall consumption, after some considerable impact as a result of the global pandemic.1

As one of two major emerging-market economies, India is often compared to China, with a vast working-age population that drives long-term economic growth and consumer trends. India names have much more room to run, despite trading at a premium over the last decade. Valuations generally appear higher due to the initial entry costs into the market, combined with the lack of infrastructure currently available in India. So, despite what some would consider as a high valuation at first glance, these names could hold some potential with a deeper economic moat that could help these companies maintain their competitive advantages over competitors.

Demand for better healthcare on the back of COVID-19 has prompted leading market players in healthcare to offer better and all-encompassing services, in a bid to take larger market share. Health expenditure per capita remains low for India, as seen in the chart below. As a result, we believe that the demand for healthcare, driven by a growing pool of private healthcare consumers in India could drive opportunities in this space.

For example, Apollo Hospitals, a multinational chain of hospitals and pharmacies, is likely to be a direct beneficiary of the government’s plans to improve healthcare infrastructure in India. The current blueprint includes spending 2.5% of gross domestic product (GDP), up from 1.2% of GDP, providing land and funding to target improving healthcare infrastructure, particularly for smaller cities.2

On the back of longstanding demand, the healthcare provider has continued with its rollout of telephone consultations with primary care consultants, and offers an omni-channel presence within its pharmacies and hospitals, particularly within the Tier 2 and Tier 3 cities. The chain has also accelerated its push towards technological advances, by digitising up to 20 million health records, and partnering with software companies like Microsoft to build a cardiac risk-assessment tool.

Korea’s Highly Competitive E-Commerce Landscape

Korea, best known for its high penetration of smartphones, supported by widespread fifth-generation (5G) network technology, is one of the main factors driving market growth. Armed with these smartphones are Korea’s modest population driving one of the world’s largest e-commerce market, which remains a key component of the consumer industry.

While Korea has a high penetration of e-commerce businesses, it remains a fragmented market, due to low entry barriers in addition to Korea’s sophisticated delivery and logistics infrastructure. Within this dynamic e-commerce market, customer-to-customer (C2C), business-to-customer (B2C) and direct-to-consumer (D2C) businesses are thriving on the advent of smartphone and tablet usage, advancements in technology, social media and evolving consumer demands. That said, that’s where attractive growth opportunities can be identified, through emerging market leaders with who may capture a larger market share.

For example, Naver’s business model empowers its partners by offering the lowest rate among its e-commerce competitors, prioritises faster payments to merchants and offers what some would consider a conservative stance on fintech businesses. For e-commerce competitor Kakao, it recently launched a new open market platform business named the Kakao Store, and offers zero commission to merchants. The company recently expanded its presence in the domestic e-commerce market and pivoted from niche areas of the sector, such as group purchases. It remains to be seen how a fragmented market will play out as it matures.

In conclusion, as thematic investors, we don’t just invest solely in the consumer sector. We invest beyond traditional consumer sectors in companies that are likely to be direct or indirect beneficiaries — we also look out for the potential leaders who will lead consumption growth.

Major Asia players such as China, India and South Korea continue to show evidence that the consumer story is not yet done. More consumers are choosing quality over quantity, in a premiumisation effect that shows no signs of abating. While low penetration of goods and services, despite huge populations in ASEAN economies, show that the ever-evolving Asian consumer will remain a driving force in a sustainable consumer trend for years to come.


1 CEIC, India Infoline, June 2021.
2 Motilal Oswal, 9 September 2021.


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