Move over, Amazon - it’s time to shop around in China

30 October 2018

Black Friday is an American-inspired discount day. Scheduled for the day after Thanksgiving, it’s the official start of the Christmas shopping season. Last year, US online shoppers made the most of the offers, spending more than $5 billion in the space of 24 hours.

However, this is a drop in the ocean compared to ‘Chinese Singles Day’, which is celebrated earlier in November to mark consumers’ pride in being single. Chinese e-commerce giant Alibaba’s sales totalled an almighty $25 billion last year, with 1.48 billion transactions in 24 hours and $7 billion worth of goods sold in the first 30 minutes alone. Take that, Amazon.

Chinese Singles Day was started by single university students in the 1990s, who bought themselves presents as a kind of ‘anti-Valentine’s day’. In 2009, Alibaba spotted a marketing opportunity and adopted the day. Since then, it has grown considerably and is now promoted throughout Southeast Asia.

China’s growth potential

China has the potential to become the best consumption story in the world. Its e-commerce market is expected to reach $1.1 trillion this year. By 2022, it is forecast to total $1.8 trillion – more than double the size of the US market and 10 times bigger than Japan’s e-commerce sector.

What is likely to drive this phenomenal increase? Firstly, the world’s second largest economy has plenty of growth potential. A decade ago, China accounted for less than 1% of the global e-commerce market and today it represents 42%. Such is its dominance that China now handles more e-commerce transactions a year than France, Germany, Japan, the UK and the US combined. And all the while, only 38% of China’s total population actually shop online.

The rise of millennials

Part of this growth is down to the explosion in m-commerce (using mobile phones to shop) and the rise of Chinese millennials, who are digitally savvy. Close to 90% own a smartphone, which they use for around four hours a day.

A knock-on effect of the one-child policy has been that many of China’s 400 million millennials have grown up slightly spoilt, exhibiting very different priorities to their parents. Instead of looking to simply improve their basic standards of living, this generation is more interested in the finer things in life. This trend has provided a boost to car sales, healthcare, tourism, entertainment and luxury brands.

Tapping in to social media platforms

The good news is that many Asian and Chinese equity fund managers are tapping into this trend.

With Alibaba and accounting for 85% of the Chinese e-commerce market, they represent an obvious place to start. Alibaba is a top 10 holding for the likes of Invesco Perpetual Hong Kong and China fund, as well as the Fidelity China Special Situations investment trust. The latter also holds car dealership China Meidong Auto Holdings,, the largest online travel agency in China, and a number of insurance companies.

JOHCM Asia ex Japan holds a smaller amount in Alibaba and, instead focusing on companies that can tap into mobile-phone usage and entertainment. Top holdings include Sina Weibo, one of the most popular social media platforms in the country. It has more than 430 million monthly active users and benefits from growing advertising, sales and revenues.

It is a high-risk area, but one that is likely to reward savvy investors

The fund also holds Sands China (also the largest holding in Jupiter Asian Income). It is a resort developer and operator in Macau, and a subsidiary of Las Vegas Sands Corporation.

First State Greater China Growth has a holding in Tencent, which owns WeChat. WeChat has been described as ‘WhatsApp, Uber and Apple Pay in a single application’.

With more than 3,000 listed companies in China and thousands more in the region, there is a wealth of investment opportunities – especially as the region’s stock markets continue to open up to foreign investors. It’s a high-risk area, but one that is likely to reward savvy investors who are shopping around for long-term growth opportunities.

Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. Darius’s views are his own and do not constitute financial advice.

Darius McDermott is managing director at Chelsea Financial Services and FundCalibre