The pervasive gloom around the world is now casting its shadow over Indian and Chinese consumers. In a repeat of last summer's woes, markets are fretting that emerging-market consumption will follow the slowdown seen in manufacturing data from these countries.
Yet this ignores the fact that much of China and India's inflation issues can be attributed to rising wages and increasing affluence. The good news for Western brands is that rising aspirations in these countries are increasingly internationally focused, thanks to the global reach of the media. In these countries, Generation Y is growing up on the same diet of consumables as American teenagers.
Nor is this improvement limited to a chosen few wealthy consumers. Even as they struggle to pass on any inflation to cash-strapped Western shoppers, most mass consumer goods makers, from Unilever to Colgate, are reporting strong emerging-market volume growth.
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This, as well as consistently strong numbers from players such as Nike and Yum Brands, is evidence that, while China's economy may be heavily driven by investment, it is making clear progress towards boosting consumption. Western brands of most hues come with an in-built advantage shoppers believe they deliver higher quality than their local competitors.
Even in the case of a short-term blip, fears over India and China ignore the scale of the demographic changes taking place. By 2030, India will be home to 30% of the world's teenagers. The median age of India at 25 and China at 34 compares favourably with Europe at 40. That means rich pickings for luxury Western brands that appeal to young people.
That said, with the risks stemming from eurozone troubles and continual skepticism about the resilience of emerging-market demand, the odds of another sharp downward move in markets is high. So investors should be sharpening their pencils, ready to pounce on share-price weakness in strong brand franchises. Here are three of my favourites.
Luxury goods group Richemont (VX: CFR) has created a portfolio of some of the world's most desirable brands, including Cartier and Jaeger-LeCoultre. Over half its sales now come from new wealth in Asia where its products are aspirational. Management has built a fortress-like balance sheet with sizeable cash holdings.
Like Richemont, Volkswagen (GR: VOW) controls the most desirable brands in auto land. This is leading to astonishing share gains relative to peers and makes it a rare beast in an industry generally devoid of pricing power. Volkswagen's key attractions are its strong brand equity in the emerging world and big savings yet to come from its efficiency programmes. Its stellar balance sheet and cash flow offer competitive advantages in tough times, and should allow it to reward shareholders with a rising dividend stream.
Finally, a stock for all seasons: McDonald's (US: MCD). The group's value appeal ensures it gains market share in tough times. Meanwhile, its menu and restaurant revamps mean it is broadening its customer base. The franchise model generates high returns and cash on low fixed costs. It also offers a very well covered 3%-plus dividend yield at a time of universally low rates.
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