Do western investors really need another fund focussed on Chinese equities? Société Générale Asset Management clearly thinks so but as the playing field is pretty crowded these days, the new fund is targetting investments at Chinese consumer industries with “high barriers to entry”.
The chinese consumer market is an obvious target for Asian investment funds these days. With China's export-driven manufacturing boom drawing to an end, government officials and multinationals alike are hoping that Chinese consumers can make up for the shortfall from declining exports.
In the US, consumers accounted for 71% of consumption, while in China consumers make up only 33%, according to Shaun Rein, MD of China Market Research.
If — and its a big if — chinese consumers can be encouraged to follow their western counterparts in saving less and spending just a little bit more, then those businesses that can successfully position themselves to benefit from this trend are likely to enjoy strong growth for years to come.
OF course, these days everyone is trying to sell to China's rapidly growing consumer class and one of the problems with consumer markets is that the barriers to entry are usually quite small .
SGAM is presumably looking for markets which require a high investment in either distribution, marketing or technology. Nokia's success in China shows that in some markets it is necessary to invest heavily in all three areas. Branding is another big barrier to entry. Western luxury brands have invested years building up their brands in China and are now starting to reap the rewards.
For example, China has grown to be the second largest market for LVMH, the French luxury goods maker , with double-digit growth rates often reported by its various brands. More on the Chinese luxury consumer in this article by China Market Research. .