China through the US Looking Glass II

Back in February we wrote a piece on how US consumer companies were fairing amidst all the commotion over US/Sino trade (“China through the US Looking Glass” – select here to view). Our conclusion, you may remember, was that all seemed set fair with a wide range of companies reporting decent growth in operations in Asia in general and China in particular.

This appears to be the trend as further reporting from many of the US and European consumer companies operating in China that we mentioned back in February have remained robust this year.

There have, of course, been differing trends across various product sectors. For example, general consumer demand remains healthy with a number of companies reporting that sales in Q2 exceeded those in Q1 (e.g. Colgate, Palmolive, Apple and Tiffany). Elsewhere, whilst sales of luxury stuff to Chinese tourists may be declining on Fifth Avenue, Bond Street and the Ginza, this is being more than offset by booming domestic mainland sales of opulent trinkets which is in keeping with Beijing’s encouragements (through lower domestic taxes, fostering onshore duty free shopping).

Of course, it is not all sweetness and light: some multi-national auto and industrial companies which were struggling when we wrote in February are still up against it.

However, as you know we do not invest in multinational companies that have businesses in Asia, preferring instead the “local champions”. These local players are reporting results that underline that the Asian consumer is very much alive and cracking on.

We have visited Asia several times this year and there has hardly been a whisper about the trade war – during a recent conference in Shanghai only one company out of the 16 we met mentioned the impact of tariffs.

In our portfolio: domestic skin care leader Proya Cosmetics offers an affordable, yet quality offering with a focus on natural ingredients which is filling the demand just below the premier international brands. China International Travel Services is the prime beneficiary of the push to bring the duty-free shopping closer to home. Mengniu Dairy continues to gain share through a strategy of product innovation and consumption upgrade (cheese flavoured yoghurt!). Li Ning, China’s home-grown athleisure story, produced another set of stellar interim results boosted especially by e-commerce sales growth of over 30% which now account for 23% of revenue.

Whilst we do not underestimate the potential impact of further disputes over trade, the evidence as we see it points to continued strong consumer appetite. We believe shareholders in the Aubrey GEMs strategy will benefit from this.


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