Asia: The Next Level of Consumption
Joohee An, Senior Portfolio Manager, on the consumption story in Asia and key aspects of the Great Consumer funds. Ms. An manages the Mirae Asset Asia Great Consumer Fund and the Emerging Markets Great Consumer Fund.
How does Mirae Asset's investment approach to Asia differ from other firms?
Many Asian equity managers exploit the long-term structural potential of the Asian consumer. Demographics are good, the middle class is growing – and so too are expectations and demand for goods from staples to luxuries. However, at Mirae Asset, we believe a more flexible, nuanced investment approach is needed as Asia steps up to the next level of consumption.
What do you mean by "the next level of consumption"?
Consumption is now the main story in Asia, not exports or investment. But investors need to be more flexible to capture all of the upside potential. There is more to Asian consumers than just shopping. When going to the hospital, they are spending money. When they buy a home, they are buying financial services. When they are using the internet, their smartphone and apps are all part of the consumption story.
Are the Mirae Asset Great Consumer funds heavily invested in the consumer staples and consumer discretionary sectors?
Consumption is a part of the economy and cannot be isolated from the wider economic cycle. Investors who focus on pure consumer themes run the risk of losses if the macro environment and sentiment turn against them. Pure consumer themes can offer little protection on the downside.
Consumption is not just about wage growth, even though it is an important driver. Security is important as well. Consumers also need to feel protected and certain about the future, which requires governments to create social services and healthcare services. We believe these consumer-related sectors tend to be less susceptible to macro downturns. So, healthcare is an important, fast-growing segment as part of the social security theme.
In our Great Consumer portfolios, e-commerce, Internet, healthcare and tourism are the dominant themes. None of these are traditional consumer sectors but just reflects the changing face of consumption in Asia.
How has the Internet changed the way people consume in Asia?
Technology is changing the Asian consumer. But, as with other structural trends like demographics and urbanization, the drivers of the technology theme differ from market to market. In India, the top visited websites are all Silicon Valley titans. Google, Facebook, YouTube and Yahoo dominate, as they are able to grab market share early based on an English-speaking audience. China's internet ecosphere has developed differently as global titans have struggled with language, local preferences and regulations. Baidu, Tencent (through its QQ social network service) and Alibaba dominate in China. They are best placed to exploit the move to mobile, to monetize online gaming and other web-based services.
Do you invest in the same themes across the Asian countries?
Northern Asian markets, including China, are moving up from necessities such as food and clothing to the next level of consumption. The "need" growth trend is being surpassed by the "want" in China, Taiwan, and Hong Kong. We see newer opportunities in tourism, hospitality, e-commerce and Internet in those markets. Many South East Asian markets, on the other hand, are still underpenetrated and there are still good stocks to be found in the basics and necessities. Staples offer interesting opportunities in Indonesia, Philippines and Thailand.
But North and South Asia are similar when it comes to the "Local Taste" theme. When it comes to favorite foods, local is always best. Indigenous, local players always have a big advantage over global food companies. They tend to have been in their respective markets for longer, know far more about their loyal customer bases, as well as having a built-in understanding of what actually tastes good to an Asian consumer.
Investment Considerations — There can be no guarantee that any strategy (risk management or otherwise) will be successful. All investing involves risk, including the potential loss of principal.
Emerging Markets Risk — The risks of foreign investments are typically great in less developed countries, which are sometimes referred to as emerging markets. For example, political, legal and economic structures in these countries may be changing rapidly, which can cause instability and greater risk of loss. These countries are also more likely to experience higher levels of inflation, deflation or currency devaluation, which could hurt their economies and securities markets. For these and other reasons, investments in emerging markets are often considered speculative. Similarly, investors are also subject to foreign securities risk including, but not limited to, the fact that foreign investments may be subject to different and in some circumstances less stringent regulatory an disclosure standards than U.S. investments.