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DonnaWalter
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  • Chinese Vis-A-Vis BRIC Consumers 0 comments
    Dec 13, 2012 8:03 AM

    Millions have been made through investments in the consumer markets of emerging economies and more millions are invested in anticipation of future profits. The BRIC story still stays robust as ever with every analyst claiming on record that current slowdowns are nothing but a good buying time.

    Money vested in BRIC markets, especially timed investments in Chinese consumer sector has bestowed unimaginable wealth on the staunch followers and traders likewise throughout the past decade.

    The general thumb-rule to be observed is that whichever way the market goes, simply follow the riches of the emerging middle classes.

    Heavily invested Chinese stocks like Tsingtao Breweries and web browser maker examples. Their prices are close to 25 times and 29 times their earnings respectively. Investor confidence has also improved with China and Brazil consumer focussed funds like BRAQ and CHIQ ETF.

    The BRIC consumer has a capacity to spend additional $500 billion every year. This is upwards of 7% annual growth meaning that by 2025 the emerging consumers will defeat their American counterparts with a collective shopping budget of $10 trillion per year.

    No wonder that the market participants are increasingly following the Chinese Retail Industry with individual stock picking and funds like Global X China Consumer ETF which is again a pure play on the sector.

    What makes Chinese consumer so different from rest of the BRIC?

    "So what if the growth rates have been tamed?" Says Jim O Neil, chief investment advisor with Goldman Sachs. The man who started it all and is responsible for creating BRIC term and its investment strategy says that the particular slow down in growth figures are mainly due to the heavy handed way the decision makers of BRIC countries have handled the Financial Institutions and Banks. In other words, an engineered drag to control the cash balance and primarily to balance out the rising inflation figures.

    In spite of a stalled growth rate, the net Retail Sales of China have grown by +14%. An improved risk appetite scenario combined with current beat down prices may replicate triple digit growth in the coming years as well. The biggest solace here is that unlike the political instability of Russia or the saturation point that Brazil seems to have reached, decision makers at the helm of Dragon's lair seem to be much more in control of the economy than their partners at BRIC.
    Experts are advocating to invest in China consumer sector funds and stocks because policy creators at Beijing are quite clear with their approach to achieve an indigenous and autonomous economy which relies more on the national produce and internal consumption, so much so that by 2030 China aims to increase the consumer sector's contribution to the GDP by 10% amounting to 43% of the gross product.

    A credit Suisse report estimates that the Chinese Net House Hold Income may grow to $ 60 trillion by 2015, which will be a 130% rise in five years flat.

    The local heavyweights in the consumer sector have seen their sales figures and market caps grown manifold due to the majority market shares they command in their respective line of products. Auto companies like Dong-Feng or the Great Wall Motor Company have benefitted largely from the thriving Auto Industry in the Asian Republic and owe their successes to once again, the millions of middle class families, most of them being first car owners. Want-Want Holdings, which sells rice cakes and similar products to the millions, is another classic case of consumer explosion that China is experiencing.

    Having said that, it is not really easy to find the growing consumer equities of China. Most recommended product for foreign investors comes in the form of China Consumer ETFs. A broad based investment at best, but along with a benchmark index to follow, also provides a homogenous exposure to the various segments of consumerism and who knows, a hefty pay-check in the coming year too.

    CHIQ ETF - Global X China Consumer Fund follows the name sake Solactive Index and has given double digit return for the past three months. Issuers charge 0.65% as management fees and have kept the allocation top heavy giving 50% of the assets to the top ten stocks. Dongfeng Motors H, China Resources Ltd. and Belle International Holdings are the current top three stocks in CHIQ.

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