Growth investors traditionally look towards the US market to find growth stocks.
The NASDAQ Composite Index, being the bellwether technology stock index, offers up enticing opportunities to park money in trillion-dollar companies such as Microsoft (NASDAQ: MSFT), Apple (NASDAQ: AAPL) and Alphabet (NASDAQ: GOOGL).
Such stocks may have gaudy appeal, but focusing on these stocks and markets alone means investors here may be missing out on growth right in their backyards.
Yes, I am talking about the myriad opportunities presented by Asia, a region we can call home.
Remember that China and India are two of the most populous nations in the world and that both are located on the Asian continent.
By missing out on Asian investment opportunities, you will be doing yourself a disservice.
Here are three reasons why Asia will prove to be a fertile ground for growth investors in the coming years and decades.
A burgeoning middle-class population
The demographics of the middle class have seen a dramatic shift in the last two decades.
According to the World Data Lab, up till 2000, the global consumer class was predominantly Western with a population of 1.7 billion people.
43 years ago in 1980, more than 70% of the consumer class was located in Organisation for Economic Cooperation and Development (OECD) countries.
Fast forward to 2020 and China has risen rapidly to fill the ranks of the global middle class.
With the Middle Kingdom’s entry, the global middle-class population swelled to four billion with Asia making up half and OECD countries seeing their contribution drop to 40%.
The current decade looks set to be South Asia’s turn with the continued growth of the middle class in countries such as India, Pakistan, and Bangladesh.
These regions will, collectively, add another one billion people to the middle-class segment, taking its total to five billion by 2030.
Of this group, 60% will come from China and South Asia while the remainder will be OECD countries.
These projections mean that investors should focus their attention on the growth of the Asian consumer as he or she will become a formidable force in the years to come.
The increase in the number of Asian consumers looks set to benefit companies such as Haw Par Corporation (SGX: H02), the maker of Tiger Balm salves and ointments, and DFI Retail Group (SGX: D01), which runs a chain of hypermarkets, supermarkets and convenience stores throughout Asia.
An appetite for luxury goods
The rise of this new class of consumers also heralds an interesting trend – that of spending on luxury goods.
Asian millennials and Generation Z consumers are becoming increasingly well-heeled and are also using e-commerce to purchase luxury goods.
China is set to become the world’s largest market for luxury goods in 2025 and the country has five times more millennials than the US’s 72 million along with three times more Generation Z consumers.
Luxury brands are also embracing an omnichannel strategy and displaying their wares online, thus catering to an increasingly digitally-savvy crowd of consumers who are willing and able to purchase luxury goods.
Luxury timepiece retailers The Hour Glass (SGX: AGS) and Cortina (SGX: C41) stand to benefit from this trend.
Jewellery retailers Chow Tai Fook (HKSE: 1929) along with luxury handbag manufacturer Prada (HKSE: 1913) will also be beneficiaries of this boom in luxury purchases.
Asia is a growing market for global brands
For many global brands, the share of revenue from Asia has grown over the years.
This higher proportion underscores the importance of the Asian region for continued growth.
Sports footwear behemoth Nike (NYSE: NKE) reported sales of US$2.5 billion to Greater China for its fiscal 2012 (FY2012) ending 31 May, representing 12% of total Nike brand revenue.
Fast forward a decade later, and this proportion has risen to 17% with sales to China tripling to US$7.5 billion.
This is an impressive 11.5% annual growth in revenue for Nike in China over the decade.
Lululemon (NASDAQ: LULU) has also seen its share of revenue in China increase from 6.8% in fiscal 2020 (ending 31 Jan 2021) to 8.4% for fiscal 2022.
Sales from the Middle Kingdom have more than doubled from US$297.7 million to US$681.6 million in just two years.
These are just two examples of how Asia is fast becoming a growing region for many global brands.
Get Smart: The Asian Decade
The evidence is clear.
This decade is the one where the Asian consumer will shine and contribute not just a strong boost to the middle-class numbers, but also provide higher revenues for numerous companies.
The propensity for Asian millennials and Generation Z consumers to spend also bodes well for companies that are either domiciled in the region or are rapidly expanding in Asia to take advantage of this trend.
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Disclosure: Royston Yang owns shares of Apple, Nike and Alphabet.
