January 12, 2011

Rockefeller Financial Reports on Opportunity in Asia

Substantial report is a worthwhile read for those looking at investing in Asia.

As U.S. consumption fell during the economic crisis, the “Asian consumer” has become increasingly important given the prospects for growth in the region,” according to a new white paper from Rockefeller Financial.

Companies are making “significant commitments in the region,” according to the white paper, Investors’ Attraction to the Asian Consumer: The Significance of the Emerging Consumer in Asia and the Related Investment Opportunities.” 

The report says that companies are already seeing “sales…revenues…and profits,” in the region: “Citigroup generated 37% of its profits from Asia year to date through September 2010 versus 17% in 2006, and has plans to double its workforce in China over the next three years. Procter & Gamble has doubled the percentage of total sales in Asia from 7% in 2002 to 15% in 2010. Sales in China represented 14% of total revenues in 2005 for Yum Brands,” according to the report, which also notes that Yum Brands will add “475 new restaurants in China,” to its restaurant “base of 3,700 units.” 

The report, by Rockefeller Asset Management Equity Analyst Christopher Crosby, notes that there are opportunities for investors to profit from the region’s “emerging consumer.” He highlights the “automobiles, air travel, gaming and luxury goods,” sectors. 

Why Asia?

Developed and emerging economies are displaying “opposite” characteristics when it comes to the economic and consumer situation, Crosby writes: “Developed regions are now left with significant fiscal and personal debt, which will most likely result in future payback via reduced social and retirement benefits and/or higher taxes on both individuals and corporations. As a result, consumer discretionary spending may be constrained in the future.”

In developing regions, “fiscal overhang is minimal.” Crosby asserts that, “in Korea government debt is 32% of GDP, in Indonesia it is 27%, and in China it is just 14%,” citing numbers from the International Monetary Fund, compared with “the U.S.’s debt ratio of 92%.” Also, “all three of these Asian countries are running current account surpluses in 2010.” The report also notes high “personal savings rates,” in the region: “China’s savings rate has been estimated to be over 50% of its income.”

Crosby writes that consumption in the region is driven by three circumstances: “urbanization,” the flood of people moving to the cities; “rising personal disposable incomes;” and the “law of large numbers,” or the multiplier effect of small “nominal” shifts in consumption “on a per-capita basis,” applied to, for instance, China’s population of “1.3 billion people.”

Risks

The report notes that there are “risks to consumption” in the region, and cites “inflation,” and a rise in values of “real estate,” among them. The real estate risk is somewhat “mitigated” by the custom in China of a “30% cash” down payment.

Crosby concludes that, while there are risks, “The opportunity in Asia may well be one that may not come along again for another generation.”

For more from AdvisorOne.com on investing in Asia, please see:

Revolution and Reform

The Smart Way into Emerging Markets

Abandoning America

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