Would you bet your savings on Asia’s consumer boom?
The £18bn shopping frenzy that takes place on Singles’ Day is the most obvious sign of the rapidly growing middle classes in China.
And because of the population numbers in Asia, the explosion of consumerism – on display today in China’s version of Black Friday – is driving growth around the world.
The internet is powering much of this, with more than one billion Chinese now using mobile internet, and are also connected to social media through apps such as WeChat. This has more members than Facebook and WhatsApp.
So how can UK savers cash in on this, and what are the risks?
Dale Nicholls, portfolio manager of Fidelity China Special Situations, says: ‘What sets China apart can be broken down into three main areas.
‘The new group of consumers who are driving China’s transition, the home-grown companies that dominate digital commerce in the country and the unique and pioneering business models these companies are devising.’
As well as mobile phones, growth areas in China at the moment are bike-sharing firms and live-streaming companies which put shows on the internet. One of the best ways to incorporate China into a portfolio, according to Chris Stevenson, director at Barclays Smart Investor, is to invest in UK-based funds with partial or exclusive exposure to the Chinese market.
exchange traded funds – which are essentially low-cost trackers – are a good option for those looking for a more passive investment, as they usually mirror the performance of a particular index, such as the SSe Composite Index, he adds.
Investors could look to funds by Lindsell Train UK equity and Crux UK – which both place fashion brand Burberry, which does a quarter of its sales in China – in their top ten holdings.
Chinese consumers are also big whisky lovers, with 40pc of all Diageo’s Asian sales attributed to the tipple. Liontrust Special Situations has Diageo as their third largest holding, while Threadneedle UK extended Alpha has it in second place.
But Darius McDermott, managing director of online funds ratings company Fund Calibre, names Asia-specific funds with exposure in China as a good way to tap into the sector’s growth.
‘As China’s middle class expands, the potential for consumer spending growth is enormous.’
he recommends the Schroder Asian Alpha Plus fund, where 32pc is invested in China.
The fund’s manager is a big believer in the Asia consumer trend and has Alibaba and Tencent in his top ten holdings. Tencent is an investment holding company with subsidiaries that can be thought of in a similar league to Facebook, Uber, Paypal and Just eat all rolled into one.
he also points to the Baillie Gifford Pacific Fund, which looks to exploit the period of change that Asia is facing, by looking for opportunities afforded by this change and investing in companies ‘disrupting the existing order’. It has about 36pc in China.
Investing in China doesn’t come without a warning, however. Many experts warn of a credit bubble that could be about to explode.
According to the International Monetary Fund’s most recent Global Financial Stability Report, ‘the size, complexity, and pace of credit’ in China’s financial system ‘point to elevated risks to financial stability’.
Will hobbs, head of investment strategy for UK and europe at Barclays, says: ‘There remain concerns with the Chinese economy, particularly with the housing market, which is again showing signs of slowing. however, we still think that the authorities have the means to staunch these problems.’