Rapid Growth Of Still-Nascent Middle Class Signals Opportunity For Investors And Family Offices In China
We’ve kept a close eye on China’s burgeoning middle class, which — despite its recent appearance on the world stage — already numbers in the hundreds of millions, presenting a vast and unique potential consumer base for companies selling everything from cars to jewelry, household goods to fashion. While the Chinese middle class is expected by many to play a major role in the global economic recovery, their buying (and saving) habits, investment strategies, and long-term financial goals by and large remain poorly understood. Today, the Wall Street Journal looks into emerging market investors who eschew the popular financial planning target customer — the wealthy or ultra-rich — to serve the Chinese middle class, and investors in the West who are banking on the continued growth of this consumer class:
Encouraged by the steps the Chinese government has taken to boost consumption, some equity-fund managers are putting money into sectors related to domestic demand, such as retail, automobiles and financials.
Chinese industrialization in recent years has lifted the average income of millions, propelling them into the ranks of a swelling middle class some say could grow to be the largest in the world.
“Thirty years ago, there wasn’t a consumer class in China, and that’s changed quite a bit,” said Constantine Papageorgiou, vice president and portfolio manager at Acadian Investments, which has roughly $9.9 billion in emerging market assets. “Those types of trends are likely to continue.”
As a strategy, investing in the Chinese consumer echoes a larger trend, where investors are seeking growth opportunities in developing-country consumers around the world, as they expand their buying prowess, purchasing a car or cell phone for the first time, for instance.
The move is also seen as a long-term investment, though, since China’s consumption push is still in its infancy phase. Some economists also say further policy changes are needed for China’s consumption trends to see upward trajectory long-term.
China’s private consumption was roughly 35% of the country’s gross domestic product in 2008– quite a bit lower than the levels in most developed markets. If China does pursue a more aggressive policy reform, the country’s private consumption could be raised to as much as 50% of GDP by 2025, according to an August report from McKinsey Global Institute, the economics research arm of consulting firm McKinsey & Co.
In coming years, it seems inevitable that the increased consumption of China’s hundreds of millions of middle class investors will affect, in some way, investors and money managers in other countries. If that is indeed the case, it pays to read up on this subject now, when the market is just starting to be defined and more fully understood.