LONDON: Chinese consumption – 'Look beyond the headlines' says, J.P. Morgan Asset Management's Kirkman
Dec 03, 2012
- Chinese tourist spend on luxury goods remains strong
London, 3 December 2012: Peter Kirkman, Portfolio Manager of the JPM Global Consumer Trends Fund believes that despite the recent fall in sentiment toward luxury goods in China, sales remain strong and the long-term prospects for the sector in the region are still compelling.
Kirkman says: "In the last 18 months, investors have been focused on short-term macro news and investors have feared sales will be impacted by the poor global economic backdrop. However, I believe that if you look beyond the headlines, sales remain strong particularly from China's growing middle class."
Whilst at first this may not appear to be the case, as reported European sales growth has been stronger than China's over the same period, Kirkman explains: "The source of these strong European sales are often Chinese tourists. Investors have become concerned about slowing same store sales growth from over 30% to the low mid-teens in China, driven by a deteriorating macro backdrop. However, we believe that the market has neglected one of the most important data points on Chinese luxury consumption and, as such, is missing one of the key trends affecting the industry - a huge increase in Chinese tourist spend."
Kirkman says that consultancy group Global Blue specialises in processing VAT claims from tourists and is a good gauge for growth in tax-free spending. Global Blue estimates that it tracks approximately 20-25% of tourism spending globally. The data, which is released on a year-on-year basis every month, has been incredibly strong so far this year with the average being a 67% increase, driven by Chinese tourists. At the company level, LVMH announced in their Q1 earnings that 30% of European spend was from Chinese tourists and also showed its duty free operation (a business where 40% of sales are derived from Chinese tourists) growing more than 18%. This remarkable growth can be attributed largely to the fact that Europe is now 45-47% cheaper than China (post FX moves) according to LVMH so there is a clear incentive to buy overseas.
Kirkman added: "This tourism spend has undoubtedly hurt Chinese mainland retailers as reflected in the weaker same store sales growth. However, looking more broadly at the data, the Chinese aspiration growth dynamic is as strong as ever. As a result we continue to be positioned to tap into the attractive investment opportunities the global consumer trends theme offers, given the long term structural changes that continue to develop in China."
Since its launch in April 2008, the JPM Global Consumer Trends Fund has returned 35.6%*. It is available via the J.P. Morgan WealthManager+ online platform at no initial charge.
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* Source: J.P. Morgan Asset Management – data to end October 2012, net of A share class fees, in GBP
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