China: Land of the rising middle classes

Fund launch looks to make the most of the country's newly minted professionals. Julian Knight reports

Difficult to define, often derided (not least by themselves) the middle class is at the centre of the world economy consuming the goods and services which keep the whole show on the road.

And over the next 20 to 30 years there is going to be a massive increase in the numbers of the world's population defined as middle class, thanks to the economic growth of Brazil, Russia, India, and especially China (the Bric countries). By the end of the decade, China for instance will have more people defined in terms of their average income as middle class than the combined populations of France and the UK. And there is no middle-class angst in this oldest of societies, they are getting richer and looking to spend.

"The growth of the Chinese and other Bric countries' middle class is one of the main economic stories of today and the next generation. It is a long-term phenomenon," says Darius McDermott from financial advice group Chelsea Financial Services.

Now the multi-billion-pound UK fund-management industry are offering private investors the chance to make money from the explosion in the Chinese middle class. Last week, giant fund management group Fidelity launched its China Consumer Fund. Hong Kong-based Fidelity fund manager Raymond Ma will hold firms involved in the development, manufacture or sales of goods or services to Chinese people in a portfolio of typically 80 to 120 stocks listed in China, Hong Kong and Taiwan.

"China is now at the point that Japan reached in the late 1960s and Korea reached in the late 1980s. The past 10 years in China have been a golden age of manufacturing and investment-led growth. The next 10 will be an age of consumer-led growth. China's growing, affluent middle class, and increasingly urbanised provinces, should propel a new set of opportunities as well as winners," Mr Ma said.

And Fidelity isn't the only investment giant looking to profit from the Chinese consumer. HSBC has plans to open a similar fund in the near future. Philip Poole, the bank's head of emerging market research, explains why: "Global rebalancing is a powerful investment theme. We have high debts in the West, while in the Bric countries they have an expanding middle class and growth in production. Take just cars – in a Chinese population of 1.4 billion less than 5 per cent have a car. That figure is going to go one way.

"There is big change under way, where instead of funds being based on geography – say a Japan or US-based fund – they will more and more be about investment themes, and the Chinese and other Bric country consumers is a major one of those."

It's not only expanding incomes, it seems, that is key to the potential of emerging markets, but lack of debt. "Many emerging countries have no culture of debt which makes it easier for them to spend on consumer items. The average Mexican, say, has debts equivalent to 7 per cent of annual income, while Britons are weighed down with debt of 110 per cent," says Mr Poole.

The overarching story of emerging market consumption growth is compelling, but some warn that this does not make funds such as Fidelity's a sure-fire bet. Mr Ma's strategy is clearly to invest in established and up and coming Chinese and Asian based companies looking to take advantage of consumer spending growth. This, says Mr McDermott, could be the fund's Achilles heel: "The fund is looking to invest in the consumer sector but this is the very sector which, according to many watchers, is currently overvalued.

"This fund is very much a long-term investment play, and not for those who will need access to their funds within, say, the next five years," he says.

Also, Diamond Lee, manager of the Ignis China Opportunities fund, says there are other clouds on the horizon: a cooling housing market, expected power shortages damaging economic growth, and poorer than expected purchasing manager data. But, long term, Mr Lee is more sanguine: "I believe firmly the long-term growth story for China remains intact, and that the domestic and consumer development theme will be crucial to future growth. Chinese growth may slow slightly over the summer, but it will not derail the long-term prospects for the country."

Nevertheless, investors wanting to benefit from the Chinese and other Bric-countries' middle-class growth story may be best looking at big multinational firms rather than local enterprises. "I think that multinationals with a big presence in China and that appeal to Chinese consumers may be among the best performing stocks of the next few years. To name just two, Nestlé and Procter & Gamble have a good presence in China. Luxury goods firms which appeal to Chinese tastes may also be a good bet; take French handbag manufacturers, the Chinese are big buyers and there is no reason for this to stop," Mr Poole says.

It seems the old investment parameter of developed and emerging economies is on the cusp of radical change, with the potential for a future dominated by themes that can be easily grasped. The middle class in the middle kingdom is certain to be one of those themes.

Independent Partners; request a free guide on NISAs from Hargreaves Lansdown

News
people'It can last and it's terrifying'
Sport
Danny Welbeck's Manchester United future is in doubt
footballGunners confirm signing from Manchester United
Sport
footballFeaturing Bart Simpson
New Articles
Olivia Colman topped the list of the 30 most influential females in broadcasting
tv
PROMOTED VIDEO
News
Kelly Brook
peopleA spokesperson said the support group was 'extremely disappointed'
News
The five geckos were launched into space to find out about the effects of weightlessness on the creatures’ sex lives
i100
Sport
Andy Murray celebrates a shot while playing Jo-Wilfried Tsonga
TennisWin sets up blockbuster US Open quarter-final against Djokovic
Life and Style
techIf those brochure kitchens look a little too perfect to be true, well, that’s probably because they are
Arts and Entertainment
Hare’s a riddle: Kit Williams with the treasure linked to Masquerade
booksRiddling trilogy could net you $3m
Arts and Entertainment
Alex Kapranos of Franz Ferdinand performs live
music Pro-independence show to take place four days before vote
News
news Video - hailed as 'most original' since Benedict Cumberbatch's
News
i100
Life and Style
The longer David Sedaris had his Fitbit, the further afield his walks took him through the West Sussex countryside
lifeDavid Sedaris: What I learnt from my fitness tracker about the world
Arts and Entertainment
Word master: Self holds up a copy of his novel ‘Umbrella’
booksUnlike 'talented mediocrity' George Orwell, you must approach this writer dictionary in hand
News
i100
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    SQL Implementation Consultant (VB,C#, SQL, Java, Eclipse, integ

    £40000 - £50000 per annum + benefits+bonus+package: Harrington Starr: SQL Impl...

    Head of IT (Windows, Server, VMware, SAN, Fidessa, Equities)

    £85000 per annum: Harrington Starr: Head of IT (Windows, Server, VMware, SAN, ...

    Technical Software Consultant (Excel, VBA, SQL, JAVA, Oracle)

    £40000 - £50000 per annum: Harrington Starr: You will not be expected to hav...

    SQL DBA/Developer

    £500 per day: Harrington Starr: SQL DBA/Developer SQL, C#, VBA, Data Warehousi...

    Day In a Page

    'I’ll tell you what I would not serve - lamb and potatoes': US ambassador hits out at stodgy British food served at diplomatic dinners

    'I’ll tell you what I would not serve - lamb and potatoes'

    US ambassador hits out at stodgy British food
    Radio Times female powerlist: A 'revolution' in TV gender roles

    A 'revolution' in TV gender roles

    Inside the Radio Times female powerlist
    Endgame: James Frey's literary treasure hunt

    James Frey's literary treasure hunt

    Riddling trilogy could net you $3m
    Fitbit: Because the tingle feels so good

    Fitbit: Because the tingle feels so good

    What David Sedaris learnt about the world from his fitness tracker
    Saudis risk new Muslim division with proposal to move Mohamed’s tomb

    Saudis risk new Muslim division with proposal to move Mohamed’s tomb

    Second-holiest site in Islam attracts millions of pilgrims each year
    Alexander Fury: The designer names to look for at fashion week this season

    The big names to look for this fashion week

    This week, designers begin to show their spring 2015 collections in New York
    Will Self: 'I like Orwell's writing as much as the next talented mediocrity'

    'I like Orwell's writing as much as the next talented mediocrity'

    Will Self takes aim at Orwell's rules for writing plain English
    Meet Afghanistan's middle-class paint-ballers

    Meet Afghanistan's middle-class paint-ballers

    Toy guns proving a popular diversion in a country flooded with the real thing
    Al Pacino wows Venice

    Al Pacino wows Venice

    Ham among the brilliance as actor premieres two films at festival
    Neil Lawson Baker interview: ‘I’ve gained so much from art. It’s only right to give something back’.

    Neil Lawson Baker interview

    ‘I’ve gained so much from art. It’s only right to give something back’.
    The other Mugabe who is lining up for the Zimbabwean presidency

    The other Mugabe who is lining up for the Zimbabwean presidency

    Wife of President Robert Mugabe appears to have her sights set on succeeding her husband
    The model of a gadget launch: Cultivate an atmosphere of mystery and excitement to sell stuff people didn't realise they needed

    The model for a gadget launch

    Cultivate an atmosphere of mystery and excitement to sell stuff people didn't realise they needed
    Alice Roberts: She's done pretty well, for a boffin without a beard

    She's done pretty well, for a boffin without a beard

    Alice Roberts talks about her new book on evolution - and why her early TV work drew flak from (mostly male) colleagues
    Get well soon, Joan Rivers - an inspiration, whether she likes it or not

    Get well soon, Joan Rivers

    She is awful. But she's also wonderful, not in spite of but because of the fact she's forever saying appalling things, argues Ellen E Jones
    Doctor Who Into the Dalek review: A classic sci-fi adventure with all the spectacle of a blockbuster

    A fresh take on an old foe

    Doctor Who Into the Dalek more than compensated for last week's nonsensical offering