Sammy Suzuki

Disruptive demographic change in China—including the emergence of an affluent class of ‘millennial’ consumers—underlines the need for investors to take a more calibrated approach to emerging markets, global asset manager AB said yesterday.

“Our research shows that the days of making big money from emerging markets simply by investing in the relevant equity index are probably over,” said Sammy Suzuki, the firm’s Portfolio Manager—Strategic Core Equities.

“Slowing economic growth in China and other emerging markets means that the tailwinds which in the past drove the relevant indices upwards for so long have stopped blowing. Opportunities still exist, but they’re much more nuanced.”

The rise of the Chinese ‘millennials’ illustrated the point perfectly, said Suzuki. “It represents an important and potentially exciting investment opportunity but, to understand it, investors will have to monitor the evolution of these young consumers’ spending patterns very carefully.”

China has an estimated 300 million millennials, who were born between the early 1980s and 2000. They represent a sharp break with the country’s past, being the first generation in the history of the People’s Republic to grow up in relative prosperity and social stability.

They are better educated than their parents, having benefited from China’s roughly five-fold increase in spending on education during the last decade. About a quarter have had a tertiary education, making it likely that they’re in white-collar jobs and earning more than their parents.

“They’re already having a big impact on global consumption,” said Suzuki. “They love to travel and typically make four trips outside their country each year—twice as many as their Asian peers. They’re fuelling growth in domestic and regional airlines, airports and online travel agencies.”

Millennials are more adventurous than their parents, travelling further afield than Chinese mainlanders’ traditional holiday destinations of Hong Kong and Macau. South Korea is proving hugely popular, with half of all 20- to 40-year-old visitors last year estimated to come from China.

They are also developing their own tastes, with some millennials preferring luxury goods made in Korea to those made in France or Italy, which older Chinese typically buy as expressions of affluence.

“These new Chinese consumers are driving a boom in goods identified with Korean celebrities, including high-end skincare and cosmetics, fashion labels, technology—even cosmetic surgery to acquire celebrity looks,” said Suzuki. “Duty-free business at Korean airports is hopping as a result.”

Other markets likely to benefit as millennials travel further afield include Thailand, Japan, Singapore and Dubai. But, said Suzuki, “Investors should take note of how the cultural and social influences that are shaping millennial spending habits are changing fast, beyond shopping.

The post China’s millennials help re-write the rules on emerging-market investing appeared first on AdviserVoice.