Focus on Asia – Edmond de Rothschild AM’s elegant view on ‘EM consumption’ theme
Consumption is one of the strongest themes in emerging markets including Asia, but allocators should understand that playing it is far more nuanced, than indiscriminately buying all equities with exposure to it, says Edmond de Rothschild Asset Management’s (EdRAM) Thomas Gerhardt.
Gerhardt (pictured) and his team manage nine emerging markets funds, with total assets of €1.6bn.
A major launch last year was Edmond de Rothschild Asia Leaders, focusing on consumption as one of its five major themes. The others are infrastructure, rising energy and commodity needs, developing financial markets, technology and process outsourcing.
EdRAM made the decision to focus partly on consumption as a theme in many of its EM funds very early – back in 2008, well before the theme gained wider prominence since the global financial crisis. Gerhardt says the early move was justified.
Thematically, consumption now comprises about 45% of the Asia Leaders fund, and plays a role in some other EdRAM EM funds, too.
“We are looking for companies with the highest long-term sustainable growth potential, and we are bullish on consumption,” says Gerhardt, whose team also runs the recently launched Edmond de Rothschild Eastern Europe and Edmond de Rothschild Emerging Europe funds.
It makes sense to focus on the theme, as emerging economies’ economic annual growth of 6% to 7% since the crisis is only about half as strong as the growth in EM domestic consumption.
Gerhardt believes there is room for consumption to grow further. It underlies about 45% of China’s economic activity, for example, whereas in America it is responsible for 70% of economic activity. Gerhardt does not expect China to reach this level quickly, “but it will go in the same direction”.
In pursuing the theme, EdRAM applies a very broad definition of ‘consumption’ – from staples to discretionary, and including tourism and gambling, for example.