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China’s consumer promise? For investors it’s crowded and expensive
For all of the hype over China's economy-shifting consumer, the country's 'rebalancing' is no source of a quick buck.
As investments go, there’s probably nothing on earth, past or present, to rival the frenzy around the growth of the Chinese consumer.
The Chinese authorities are depending on consumer power to ‘rebalance’ the economy – wean if off cheap exports and unsustainable government investment – the success of which will be pivotal for the health of the whole global financial system.
And for fund managers operating in the country, like Fidelity's Anthony Bolton, it’s their biggest selling point, the seemingly indisputable marketing tool for a country where growth is gradually slowing, but they hope becoming better quality.
But forget it. At least in the short term, says fund manager Jonathan Schiessl.
The Ashburton fund manager, who manages the Chindia fund which splits investors’ money between India and China, gives several reasons. For a start, the population may be huge and getting richer, but they still haven’t shaken off their old thrifty habits.
‘Until they get a decent social safety net people are still going to squirrel away a lot more cash than we do in the West. We’re still not there yet – the Chinese for many years will still be basic savers as opposed to consumers,’ he said in an interview.
‘We’ve seen a massive increase in consumption. But I still think we’re only at the beginning phase of that move,’ he added.
Economists debate how close China is to a successful rebalancing, as the country continues down its troubled path to reform.
In their highly-regarded Equity Gilt Study, Barclays Capital strategists said this rebalancing – or shift from ‘miracle’ economy to normal development as they described it – is happening perhaps faster than appreciated, at least better than always-contested official numbers show. But for this trend to stick further major reforms are needed.
On Monday premier Wen Jiabao opened the annual conference of the National People's Congress, its parliament, with plans to help this rebalancing by fuelling domestic consumption. At the same time he set the economy’s growth target at 7.5% for 2012, though this number is expected to be surpassed.
But the consumer market that the economy – and investors – must tilt towards is incredibly fragmented, with few opportunities to actually profit from it, Schiessl notes.
‘There aren’t that many good quality companies that you can buy. The ones that are good quality are trading at huge premiums.’
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