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What Angus Tulloch learnt from his latest trip to the East
by Matthew Goodburn on Dec 17, 2012 at 11:06
First State's emerging market investment veteran Angus Tulloch has warned that consumer appetite for luxury goods is slowing sharply across much of Asia and that the recent China-led modest recovery in commodity demand is likely to peter out.
Slowdown in demand for luxury goods
Tulloch told Citywire that while the long term Asian growth story remained intact, recent increased public hostility to conspicuous over consumption was not only affecting sales of top end Western brands, but also dampening many of the region's property growth stories, as stricter taxation rules have been applied.
Tulloch, who runs the First State Asia Pacific Leaders fund and heads up the emerging markets team which includes Alistair Thompson's First State Asian Growth I and Glen Finegan and Jonathan Asante's First State Global Em Mkts Leaders fund, also expects the Australian dollar to weaken significantly over the coming months.
Tulloch told Citywire: 'From our most recent trip we have noticed that the growth in demand for luxury goods has fallen dramatically, particularly in Korea and Taiwan.'
'We think the consumer has turned more cautious in North Asia and we also noticed it in China at the start of the year. There has been a lot of negative sentiment towards ostentatious consumption and with a big focus on corruption in China, over spending has become frowned upon.'
Tulloch says that the very highest end products such as Chanel and Prada have been relatively resilient but the next tier, led by the likes of Burberry and Hugo Boss, have suffered falls in demand over recent months.
'The growth story remains intact but a focus on company specifics is crucial as margins are being squeezed so access to working capital is crucial.'
He also believes a renewed focus in the region to get tough on property speculation has cooled local property markets as governments get tougher on second home ownership. He cites Hong Kong and Singapore as the most recent examples, where onerous new taxes are being levied against foreign property owners looking to sell property within two years of buying.
'China has already introduced new taxes and now Hong Kong and Singapore have. China is worried about a political backlash and further instability, so has a huge focus on affordable housing. If the annual growth gets into double figures they will act.'
Tulloch poured cold water on recent renewed optimism that China is starting to up its demand for raw materials again despite recent better numbers from some commodity stocks.
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