Mirae Asset: Investment wisdom from travel experience

April 09, 2015 07:00
Mirae Asset's Rahul Chadha discovers investment opportunities by observing people’s travel patterns. Photo: HKEJ

There must be some investment wisdom in this Chinese proverb: “He that travels far knows much.” 

For Rahul Chadha, co-chief investment officer of Mirae Asset Global Investments, one can discover investment opportunities by observing people’s travel patterns.

“When the Japanese yen fell to 120, everyone in Hong Kong wants to go to Japan,” Chadha said. “Now the same situation is in Europe where goods are really cheap. The Chinese would love to go there.

“Same for Hong Kong people. You may cut down your handbag purchases but you wouldn't cut down your holidays.”

The going-out pattern of Chinese tourists is one of the core investment themes of Mirae, an award-winning fund management firm in Lipper Hong Kong 2015 under the three-year performance in Asia ex-Japan.

Mirae says the "hockey stick" growth seen in Japan's outbound tourism during the '80s and '90s could also be discerned in future travel patterns in China.

Currently, there are over 100 million outbound tourists from China, and their number is expected to reach 250 million by 2020. They are spending about US$8,000 per capita GDP.

By destination, Hong Kong grabbed 48 percent (or over 40 million tourists) of the mainland tourists in 2013 while Macau took 22 percent, with the rest divided between Korea (5 percent), Thailand (4 percent) and Taiwan (4 percent). France, Germany and Switzerland did not make it to the top 10.

But things have been changing. Mainland tourists now have more options than just Hong Kong and Macau. Increasingly, they want to go to Europe, a pattern that Chadha detected last summer.

Chadha said he took his 10-year-old son to Glasgow and was surprised to find that 70 percent of the tourists in the airport were Chinese, and many of them were students.

Through his boy, he asked the young travelers what they were bringing back as gifts to China.

His curiosity helped him to pick Amore Pacific, a Korean cosmetic company which was popular among Chinese tourists. He's sitting on a triple share price increase in Amore Pacific since early 2014 after noting that, despite flat domestic sales, its products were very popular in duty-free shops.

“For many mainland tourists, they bought one Samsonite suitcase and put nine small packs of Amore Pacific for gifting their cousins and friends,” Chadha said as he showed a snapshot of a duty-free shop at Incheon Airport swarming with Chinese tourists at 6 a.m.

That's also why he loves Samsonite, along with duty-free shops, airports and resorts to capture the rising demand from mainland tourists, who contributed as much as 50 percent of their businesses.

Finding out what products the tourists like and what they buy also help Chadha decide which consumer plays to buy.

He strongly believes that studying the population and lifestyle patterns in the region would help investors spot the winners.

“We believe if you get good leadership with good demographics, you can create what Malcolm Gladwell calls the 'Outlier' effect,” Chadha said, citing the cases of China, India and Indonesia, whose combined population accounts for over 40 percent of the entire humanity, and whose governments are all stable.

Another trend he spotted is the rise of local multinational corporation consumer plays which won market share from their bigger international rivals because they focus on low to middle income consumer groups with improved product quality and better management.  Universal Robina of the Philippines and Godrej Consumer of India are a couple of examples.

Ben Kwok contributed this article.

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