You have probably seen media reports lately on the rise of the Chinese middle class. Here are some ASX share ideas that could take advantage of this trend.
The Rise Of The Middle Class
In 2002, China’s middle class (defined by spending $10-$50 a day) made up 4% of the population. 10 years later, the middle class was 31% of the population. On top of that, wage growth from 2001 to 2015 averaged 11% per annum. This gives Chinese consumers significantly higher disposable income than they had a decade ago. So, which Australian companies can take advantage of this?
Blackmores Ltd (ASX: BKL)
Blackmores, founded in the 1930s, is now Australia’s leading natural health company, operating brands like Blackmores, BioCeuticals, the Blackmores Institute, Fusion Health & Oriental Botanicals, and Impromy.
Looking at Blackmores’ recent quarterly update, they announced a fall in Australian and New Zealand revenue of 26% on the prior corresponding period. While this was disappointing, they also announced that Chinese revenue grew 19% in the same period driven by increased in-country and export sales.
Further, Blackmores stated they have “undertaken a major strategic review on how to maximise our Chinese consumer facing opportunity, including supporting daigou to more deeply engage with the Blackmores brand.
Blackmores also saw strong growth in Taiwan, Hong Kong, Korea and Malaysia. The results show that the Asian market will become increasingly important for Blackmores over the coming years.
The a2 Milk Company Ltd (ASX: A2M)
The a2 Milk Company had an impressive 1H19, reporting revenue growth of 41% and EBITDA growth of 52.7%.
While Australia and New Zealand revenue grew 37.5%, China & Other Asia revenue grew 50.1%. EBITDA growth in China was 41.6% for the half-year.
The main growth prospect for a2 Milk is infant formula sales in China. During the half, China label revenue grew 83%. Infant formula is a big focus for several of a2 Milk’s competitors as well, including Bellamy’s Australia Ltd (ASX: BAL).
With the growing demand in China, I think either of these two companies could be well-positioned to take a significant market share.
BetaShares Asia Technology Tigers ETF (ASX: ASIA)
For a slightly different approach, the BetaShares Asia Technology Tigers ETF could be worth considering. This tech-focussed ETF invests in the biggest Asian tech shares including Alibaba Group Holdings Ltd (NYSE: BABA) and Tencent Holdings Ltd (HKG: 0700). A growing middle class in China could lead to higher technology consumption as disposable income increases. With the sheer size of the population, Chinese technology companies are certainly companies to watch closely.
A word of warning: this ETF is relatively new and only opened for trade in September 2018, so it’s too early to really get a gauge of performance.
For other growth share ideas, check out the companies in the free report below.
2 Small-Cap Pocket Rockets
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Disclosure: At the time of writing, Max owns shares in BetaShares Asia Technology Tigers ETF (ASX: ASIA).