Writing in Standard Life Investments’ latest Global Outlook, the emerging market equities investment director said: “There are growing signs that Chinese consumers’ love affair with cars and luxury items is on the wane.
“This may prove problematic for those companies that have become increasingly reliant on the nation’s spending power.”
One company that recently warned on its reliance on China is Burberry. The luxury fashion brand said adjusted profit before tax for the year to 31 March, 2013 is likely to be at the lower end of market expectations.
Stacey Cartwright, Burberry’s chief financial officer, said: “China is a significant contributor to the decline.”
Miller, manager of the Standard Life China Equities Fund, said the shift in Chinese consumer buying patterns opens up opportunities to other companies, such as those in the smartphone networking and manufacturing sectors.
The manager highlights China Unicom, the nation’s second largest mobile operator, as a different way to invest in the China consumption story.
China Unicom has added about 2.9m users in each month of 2012, taking its share of the country’s 3G net additions from 16.5% in the first quarter of the year to 36% today. In addition, smartphone operators are unlikely to lower tariffs than their current levels, protecting margins.
Miller added: “The growing spend on smartphone services in China is also a positive driver for PC and handheld-device maker Lenovo. While the company remains predominantly a PC specialist, it is becoming more focused on tapping into the high-growth smartphone market in China.”
Lenovo is aiming to sell 18m units in China over 2012 through targeting the cheaper, entry-level end of the market rather than through promoting top-end, luxury phones.
Recent research by McKinsey appears to support the continued rise of luxury spending in China.
The management consulting firm remains optimistic that the Chinese consumer will continue to gravitate towards luxury goods as incomes rise and the middle class spreads, especially as they ‘trade up’ the quality of their possessions.
“Trading up – buying more expensive products and services – continues to be a powerful trend fueling the increase in Chinese consumer expenditures,” McKinsey’s ‘From Mass To Mainstream: Keeping Pace With China’s Consumers’ report said.
Among consumers who reported higher spending in real terms, 34% cited trading up as their main reason. They also seem to be consuming more in general or purchasing in greater quantities, the report found.
But McKinsey argued that, despite“a fast-growing segment of the population is becoming more self-indulgent in purchasing activity”, Chinese consumers remain “basic value seekers” – which may support plays in cheaper end of popular sectors like smartphones.