INVESTMENT VIEW: Julius Baer Seeks To Capture Changing Chinese Consumer Habits

Tom Burroughes

17 February 2014

Changing patterns of Chinese consumer spending will benefit developments such as shopping malls in areas such as Hong Kong, and more international travel tastes,” the bank said. It predicts the number of outbound trips to rise by an annual rate of 15 per cent, surpassing 150 million trips by 2017.

Such tourists are heading to Hong Kong and Macau – the two most popular destinations – while there is strong interest in countries such as Thailand, South Korea, Taiwan, Japan, the US and Singapore.

The ascent of a Chinese middle class has for some time been associated with a boom in sales of luxury goods out of some countries – such as France and Switzerland (garments and watches, respectively). Brands such as LVMH and Richemont both have “buy” recommendations” from Julius Baer; the trend of luxury spending should also benefit sectors such as hotels, the bank said. Another area is “health tourism”: Chinese travellers now account for about 20 per cent of inbound medical tourists to Korea, seeking treatments such as plastic surgery.

On broader economic points, the bank noted that markets have quickly hit those countries must vulnerable to a slowing in the pace of Chinese growth, notably commodity/resource-rich Australia. Hence some weakness in the exchange rate of the Australian dollar, the bank said; on the other hand, New Zealand’s strong domestic economy was positive for the New Zealand dollar. Julius Baer expects the Japanese yen to remain weak, given how the government remains determined to press ahead with its quantitative easing programme.

In the fixed income space, Julius Baer expects the asset class as a whole to deliver low, but positive returns; an improving US economy is supportive for risky assets, such as high-yield debt. Julius Baer said that as far as Asian high-yield debt is concerned, it remains overweight, as default rates are low (1.2 per cent in Asia).