Consumer-led growth tipped to dominate the next decade

PUBLISHED : Monday, 09 May, 2011, 12:00am
UPDATED : Monday, 09 May, 2011, 12:00am


The mainland economy is expected to slow down in the second half of the year, but analysts and strategists suggest cyclical stocks to invest in, such as energy, consumer-goods makers, health and raw materials companies.

Raymond Ma, portfolio manager at Fidelity International, says the central government's policies will help domestic consumption and consumer oriented stocks.

'China is on the brink of a new phase of consumer development that the world has never seen before,' Ma said at the launch of the China Consumer Fund, which focuses on mainland consumers.

'The foundations for a quantum leap in the volume and quality of consumption are now in place in China. There are pro-consumption government policies, strong productivity and income growth, an under-penetration of consumer goods and services, upgrades in the quality of consumption, and robust urbanisation.'

John Woods, chief investment strategist, Asia-Pacific, at Citi Private Bank, agrees that cyclical stocks will do well. 'At the moment, their valuation is reasonable,' he says. Woods says moderation in the mainland's Purchasing Managers' Index is a good sign and suggests a gradual slowdown of the economy, possibly to about 8.5 per cent in the second half of the year. The daily Agriculture Price Index has been declining, suggesting food inflation should fall. He expects a decline in the Consumer Price Index to below 5 per cent for this month and beyond.

Ma says the past decade on the mainland has been a golden age for manufacturing and investment-led growth. He expects the next decade to be an age of consumer-led growth.

'Domestic consumer spending as a percentage of GDP should skyrocket over the next few decades and China's growing affluent middle class and increasingly urbanised provinces should propel a new set of opportunities as well as winners,' Ma says.

He says mainland wages and domestic demand will continue to grow strongly over the next five to 10 years, further stimulating this consumer boom. 'In the 12th five- year plan, the government has started to address income inequality by promoting wage growth so the national average wage could double over the next seven years,' he explains.

Woods has a strategic bias towards north Asia, where stocks are trading about 13 times earnings. He expects liquidity to start flowing back to these stock exchanges and feels that Indian equities are expensive with stocks trading about 22 times earnings.