Image: Lululemon Athletica
China continues to dominate market headlines, with an overwhelming emphasis on tariffs. With so many looming questions, when will a deal be made? How are company revenues impacted? It’s a narrative that has given pause to investors.
But this saga overshadows a strength in the region that has propelled a number of consumer-facing brands in the last few quarters. As we approach another earnings season, we’ll likely see continued growth from these companies, particularly luxury goods that have a strong e-commerce presence, as Chinese consumers continue to spend in droves.
Chinese consumer strength has grown steadily over the past two decades, buoyed by an emergence of a blossoming middle class. Recent reports show that Chinese consumers account for a third of all spending in the luxury category alone. Despite worries about the impacts of tariffs, Chinese consumers are resilient. The future of this middle class is growing, which means a growing number of consumers with disposable income.
This growth is reflected in both China and the greater Asian region. There are more consumers that fall into the millennial or Gen-Z categories in China than the entire population of the U.S.! This is even more magnified across Asia, creating a wonderful tailwind for brands across the globe that resonate with these consumers.
In China, Alibaba
Baidu
European companies are also benefiting from growing Chinese demand. Specifically, these new middle-class consumers are driving luxury brands with great strength. It’s a trend reversal after years of lagging results, for which the Chinese consumer has played a big role. LVMH
Ferrari
U.S.-based companies in this sector continue to benefit from Chinese spending, despite the current tariffs. Retail brands such as Nike
Apple
As earnings season kicks off, and these companies divulge their success for the first quarter of 2019, we can expect that these companies across the globe will benefit from the Chinese consumer, and the greater spending power coming out of Asia. There will always be short-term hiccups, but investors would do well to take advantage of any earnings weakness to begin building or adding to the global consumerism theme through many of these brands.
Eric Clark is the portfolio manager of the Rational Dynamic Brands Fund (HSUTX).