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Three key ways to play Asian consumer growth

Investors are well aware of the emerging middle class, but who should they back? Coupland Cardiff’s Rory Dickson takes a closer look.

Maximising Millennials

The growth of the millennial generation is often viewed as a western phenomenon, but this misses out an increasingly powerful consumer element emanating from the Asian market, according to industry veteran Rory Dickson.

With the growth of ecommerce gathering steam, Dickson, who runs the CC Asian Evolution fund, said there are several companies across the region capitalising on changing trends, while also not piling into high-risk areas of the market.

In this gallery, Dickson runs down the three key themes for tapping the strength of the Asian structural growth story, which has led him to increase small- and mid-cap investments, as well as off-benchmark ideas.

Looking for leaders

The first of Dickson’s three key themes is the focus on so-called ‘high growth leaders’. These are large, liquid companies in the larger and faster growing markets, mainly China and India.

‘Although there will be no undiscovered gems here, it is important to be disciplined in this space, particularly regarding valuations as flows come and go from large institutional investors and passive funds. Companies tend to have a market cap upwards of $3 billion.’

Stock examples

  • Britannia Biscuits (India) – ‘Remained a top three manufacturer for several years until a change of management (in 2013) premiumised the brand portfolio, creating new products that appealed to the millennial generation.’
  • Amore Pacific and LG Household & Healthcare (Korea) – ‘Just because spend is increasing in new areas, does not mean that global brands, who have a local presence, are the only firms benefiting. Companies such as Korean firms Amore Pacific and LG Household & Healthcare have tapped into this demand in China, which has been the primary driver of strong growth.’

Finding new franchises

Dickson said the growth of domestic companies, which are becoming more and more prominent alongside multinationals, is also worth investigating for investors in the region.

‘With market caps of between $1 billion and $5 billion, such companies tend to sail slightly off the radar of big institutional investors and so, for those with solid ties to the markets and a willingness to invest for the long term, throw up fertile opportunities.’

Stock examples

  • Mitra Adiperkasa (Indonesia) – ‘It is so well entrenched in the retail fabric of the country, that most international brands use MAPI as the partner with which to access this market – brands such as Starbucks, Marks & Spencer and Zara.’
  • Vinamilk (Vietnam) – ‘Multinationals can’t get a look-in because of how established Vinamilk’s brand has become, not to mention its distribution reach and pricing model. Vietnam has recently started opening up to foreign investors in a bid to raise capital.’

Dealing with dominators

Dickson said knowing the market from a bottom-up basis is crucial to uncovering local dominators, with multinational subsidiaries proving particularly attractive. Dickson said these stocks tend to operate like private equity style investments but in public markets.

‘They are hard to gain access to as they don’t trade often so you have to be patient and take investment opportunities as they arise. Given the nature of these companies there is very little institutional money in the space so valuations tend to be much more appealing.’

Stock examples

  • 7-Eleven (Philippines) – ‘It took 25 years to grow the chain to 300 outlets, and less than 10 years to grow to the current number to more than 1,800, as the company has hit critical mass and Filipino consumers have reached a stage where they can afford to pay for convenience.’
  • Nestlé (Sri Lanka) – ‘Nestlé in Sri Lanka has a low free-float of around 10% so is largely uninvestable for institutional investors meaning valuations aren’t stretched. As the most dominant food and beverage business on the island, you get the best of both worlds – multinational governance, brand and innovation with domestic growth.’

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Rory Dickson
Rory Dickson
166/217 in Equity - Asia Pacific Excluding Japan (Performance over 3 years) Average Total Return: 16.15%
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