China is fast becoming the dominant economy again, as it has been for much of the past 3.000 years, and investors can't afford to ignore the trend. That's the message from Didier Rabattu, LO Funds Emerging Consumer fund manager for investment firm Lombard Odier IM.
The breadth of the domestic market, in terms of population, China weighs as much as Europe and North America together, and the increasing well-being, a consequence of continuous development and an average annual salary that has increased by at least five times since 1999, makes China ready for growth based on domestic consumption.
Our goal, continues Rabattu, is to invest in Chinese companies that are the equivalent of Coca-Cola, active in the distribution or production of consumer goods, well managed and at the top of their respective product categories. Companies that can benefit from the structural dynamics underway in China: consolidation, infrastructure development, westernization of consumption, increase in disposable income.
The construction of the LO Funds Emerging Consumer portfolio is therefore affected by this allocation choice.
In our fund's portfolio – explains Rabattu – we have recently increased exposure to China, starting from the evidence that shares are returning to having attractive valuations. Among the companies we currently watch with interest is China Resource Enterprises, added to the portfolio in April, a leading brewer in China, with a 22% stake and with a 8,7-year joint venture with SAB Miller through the brand Snow. In the beer segment, the numerous acquisitions in recent years and the introduction of the Snow brand in the local market lead us to believe that there is the potential for an increase in margins on Ebit, compared to the current 30%, through an increase in operating leverage and thanks to an industry consolidation. The Chinese beer market is still in its infancy, compared to the USA, and therefore we believe there is ample room for growth. Currently, the average annual per capita consumption of beer in China is 80 litres, compared to XNUMX in the United States.
