THE future of the consumer sector lies in Asia, a recent financial industry report has noted.
And, while hard-travelling, free-spending Chinese consumers are expected to drive a hefty chunk of growth, the South-east Asian market is not to be sneezed at either.
Thailand’s home improvement market and Indonesia’s department stores are some consumer segments in Asean that HSBC is keeping its eye on.
The bank has put out a report on 21 consumer stocks on which it hews to “buy” calls, based on how it expects emerging markets in Asia to make up close to 35 per cent of the global economy in 2030 - up from 26 per cent now.
“Research has shown that it is small and medium-sized cities in Asean that will drive future economic growth,” said consumer analyst Nigel Kiernan. “In Indonesia, for instance, some relatively smaller cities are becoming growth hot spots.
“Gresik in the East Java province of Indonesia is a case in point: The city has only about 1.2 million inhabitants but nearly 60 per cent of them are in the consuming class. Discretionary spending is 12 per cent higher there than the Indonesian urban average.”
Mr Kiernan added that “such developments are key to profit growth for companies, such as Matahari Department Stores”, where almost three-quarters of gross sales in 2018 took place outside Jakarta - mostly in medium-sized cities.
He also highlighted Thai retailer Home Product Center as a company to watch, as incomes rise and the retail sector becomes more formally organised.
“We believe both of these long-term growth engines offer attractive tailwinds to HomePro’s medium-term growth story,” said Mr Kiernan, who noted that Thailand’s economy “is directly influenced by intra-Asian trade and outbound Chinese tourism”.
South-east Asia could also get a lift from companies that hail from outside the region.
HSBC analysts were bullish on Taiwan-based clothing manufacturer Eclat, which serves athleisure brands such as Under Armour and Lululemon.
“Eclat should benefit from orders shifting to South-east Asia,” they wrote, pointing to fresh management plans to expand fabric and garment capacity.
The capacity growth, they said, is probably “underpinned by the trend of orders shifting from China to South-east Asia and wallet share gains from existing customers”.
Growth goes both ways: “As US-China trade tensions heated up in H2 2018, brand customers started to look for production bases outside of China. Vietnam became one of the best destinations, given the country’s complete infrastructure and textile supply chain,” they said.
“Eclat has closed all of its China production plants in 2016 and most of its capacities are located in Vietnam and Taiwan. Regardless of the US-China trade tension, we also note that wages in China have been a substantial pressure for textile companies.”