It may not seem important right now but the financial advisors in our Perth office are keeping an eye on Chinese spending habits. Change in Chinese spending habits are affecting a diverse lot of Western companies. Last year, Volkswagen, Nestle, Yum and Proctor & Gamble underperformed due to sales in China being weaker than expected. Meanwhile, Mercedes, Starbucks, Adidas and Nike had sales in China that were stronger than expected.*
Recently, Andy Gardner, who is the Portfolio Manager/Analyst of Fundamental Equities for our parent company, AMP Capital, covered the evolution of Chinese spending on the AMP Capital blog. The article, called “The evolution of the Chinese consumer,” explored the recent change in spending habits among Chinese consumers. We would like to provide an analysis for you.*
According to Mr Gardner, China is shifting from being a “developing market” to a “mature emerging market” or a “developed market.” In a developing market, good brands that differentiate themselves tend to perform better than brands that don’t differentiate themselves. Due to the mathematics of its massive size, performance in China can have a huge effect on earnings. As Mr Gardner says, “…if your brand starts to perform badly in China, you can expect (it) to be reflected in stock performance.*
What’s Happening in China
Consumers in China have learned how to more accurately assess brand quality, identity and value for their money. The proliferation of smartphones has provided the Chinese consumer with more information. They are now looking for a better quality of life.
Assets that focus on health and wellness continue to exhibit strong growth, while products perceived as “unhealthy” are seeing decreased growth. While bottled water, diapers and yogurt grew, instant noodles, sugary tea and carbonated drinks showed decreased growth.
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*AMP Capital, 19 February 2016. Andy Gardner: “The evolution of the Chinese Consumer.”