Inflation in emerging markets doesn’t derail the case for investing in consumers, a JP Morgan fund manager has said.
Peter Kirkman, manager of the JP Morgan Global Consumer Trends Fund said inflation in China was largely due to high employment rates, while wage growth meant living standards or workers were still increasing.
“In the previous ten years we saw inflation below 3% because of the ‘underemployed’ rural workers. Now this spare capacity has disappeared. However, critically, higher productivity now is leading to double digit wage growth, so the emerging market consumer is still seeing an increase to his/her living standards in real terms.”
Employment changes and migration to urban areas leads to changes in consumer behaviours which the fund aims to benefit from. While the fund has been largely invested in companies listed in developed economies as a way to access consumer themes it is now taking on more exposure to emerging market companies.
With a decline in share prices in emerging markets such as China and India, partly due to inflation and growth fears, Kirkman has re-allocated some of the fund’s holdings to companies that can benefit from consumers in their domestic markets.
Kirkman said: "We are finding a lot of mid/small cap names with great growth potential where valuations have corrected very sharply, often as much as 40% to 50%. As such, our emerging market weighting has increased from around 20% to 30% in the last three months. We will continue to add money incrementally if valuations continue to come down.
"That said, in the luxury space, we continue to believe that western brands will be the key beneficiaries."
Research by Credit Suisse suggests that by 2015 emerging markets will account for 39 per cent of global consumption. The fund invests in luxury brands it believes benefit from a growing demand for high-end goods in some countries, such as China.
The fund, currently ranked 3rd in the Investment Management Association (IMA) Global sector, is now three years old.
See the Investment Focus: JP Morgan Global Consumer Trends article written earlier this year for a closer look at the fund »
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