What the smiling fashionista Tweedledum and Tweedledee represent to the average West End punter I’m not sure, but on my way back from a meeting to discuss emerging consumer trends, I’ve learnt how luxury brands are doing very well indeed out of certain well-heeled Asian travellers.
This opportunity has been covered greatly in recent years, with specialist vehicles such as Julius Baer Luxury Brands Fund, Pictet Premium Brands and Amundi Equity Global Luxury and Lifestyle gaining in popularity.
West is best?
Granted, the brands they invest in, such as Swatch, L’Oréal, Christian Dior, Luis Vuitton, Tiffany and Nike, are Western, but they can still be seen as an intriguing play on the habits of an increasingly wealthy emerging market consumer.
Categorising all emerging markets as one entity is an increasingly outmoded way of looking at the world, though it is clear composite indices such the MSCI World EM have suffered in the past two years.
We’ve discussed before the soft closure of the giant global emerging market vehicles from First State and Aberdeen, and the possible alternatives in that sector. But perhaps the best route ahead is to take more of a thematic approach to profiting from the massive demographic changes happening in the developing world, whether that’s in commodities, infrastructure or consumer trends.
Arguably, the more concentrated you become the more risk you take, though this does not mean fund managers can’t mitigate these risks.
Didier Rabattu, head of global equities at Lombard Odier Investment Managers, runs the firm’s Emerging Consumer Fund, which is spread across three distinct strategies: fundamental value, event driven and fundamental growth.
He says: “It’s our obsession not to be in a one-way trade. The key is diversification across sectors – retail discretionary for example is very different from food manufacture and retail.”
“In India there are seven million food retailers, this compares to seven major supermarkets in the UK. We own Unilever India, which sells to all those retailers, as well as Colgate India and Shoppers Stop, the second-largest hypermarket in India yet it only has seven stores. You can see its potential; it’s like what Tesco was in 1951.”
A different animal
On the other hand, luxury brands is a “different animal” with most of their business coming from rich Asian and Russian visitors to Europe – in that sense it may not even be the emerging markets story we imagine it to be.
“Whereas supermarkets are at the very beginning of their journey in emerging markets, luxury brands is an established, but still profitable, story,” adds Rabattu.
“It is estimated that 100 million Chinese tourists will be attracted to Europe by 2025.”
That’ll certainly keep London’s store ‘greeters’ grinning for some time yet…
