While Russia’s economy is weighed down by the weak oil price, India’s is boosted by a strong program of reforms, and China’s is carefully navigating a slowdown of growth, the key to looking for investment opportunities in all three emerging markets is the focus on consumers, argued Budden in a press briefing last week.
China is the best illustration. While the increasingly wealthy and sophisticated consumer class generates business and investment opportunities in many areas, Budden said that one of the biggest themes in his firm’s portfolios was “getting China online”, and payments in particular.
“China may have a lower per capita GDP than many developed countries, but it leads the world in online payments,” he said. “Tencent and Alibaba are world leaders, looked at by many companies around the world, aspiring to follow them.”
Investing in consumer-oriented businesses, or the “new China” sector, helps insulate the portfolio from political and macro-economic jitters. “We like investments that do not depend on the government,” said Budden. “We look for ones that are independent of the financial sector and independent of investment spending.”
“We invest in companies that are blazing entrepreneurial and creative trails,” he added. “There’s no shortage of them in China and other emerging markets.”
Late-mover advantage
The leap-frogging of developed countries in mobile banking and payments has been an effect of “late mover advantage,” noted Budden. Although developed countries have a more advanced banking infrastructure than China, the infrastructure is deeply embedded, difficult to displace and disrupt.
The lack of such dependencies and the availability of more advanced technologies at the start has enabled very dynamic development of payment systems by companies such as Alibaba and Tencent, the parent of WeChat.
In addition to driving the business of the two main payment providers, this consumer-focused transformation also boosts companies providing software and hardware that enable it, noted Budden. “But the biggest effect is on all those merchants that benefit from the success of the payment systems and enjoy a higher rate of growth because of the access to customers,” he said. “It extends across a wide range of segments.”
Bullish on China
“We’re feeling quite positive [on China overall],” Budden said. While the beginning of 2016 saw some weakness and uncertainty around China’s currency and the government’s ability to manage the slowdown of the economy, “we’ve now seen stabilisation,” he noted.
The country has its own set of problems and imbalances, but because of its closed economy, they are easier to deal with than they would be in more open ones, observed Budden.
“Rising debt levels can be something we should think carefully about, shadow banking has a bunch of risks around it, but in China it is less likely to cause a significant crisis,” he said. “It is possible to navigate this by a smoother path than [it would be] in the US or in Europe.”
“The authorities have a wide range of tools they can use to manage the economy in the short and medium term, so they can really mitigate crises as they start to unfold,” he added.
