Oxstones Investment Club™by Jon Markman, Market Watch,
Commentary: Got ‘Hot-Kid’ milk? You soon may as global brands spread
For most of the past 30 years, investing in emerging markets meant supporting arsenic-fouled strip mines, roads hacked through rain forests, underpaid factory workers, corruption, inequality, meanness and squalor.
Today much of that still exists but there is so much more going on in emerging markets such as Thailand, Brazil, India and the Philippines. More importantly, your investments are not just in mines, banks and factories, but in consumer goods makers creating innovative products that will blow you away.
The international consumer behavior research firm Trendwatching, based in the Netherlands, recently scanned the horizon for the most remarkable new products of the emerging markets, and I’d like to share their findings with you. It’s an amazing time in which new brands invented in China or the Philippines or Thailand can compete locally with Western brands head to head, and win big. And our investments are helping these firms with capital formation so effectively that we are going to see these brands on the racks at Nordstrom before you know it.
The reason that consumer brands in emerging markets are hot, according to the research: Consumers in urban environments are rapidly getting wealthier, more sophisticated, more mobile, and more educated — and a side effect is abundant confidence, enthusiasm, creativity, entrepreneurial spirit and a hunger for new things. Whether it’s locally made soap or whisky or mobile phones, they want their own stuff, not ours.
This is big business. Developing economies have accounted for almost 70% percent of world growth over the past five years, according to Carnegie Foundation data. The GDP of emerging economies amounted to 20% of world GDP in 2000, 34% in 2010, and an estimated 39% by 2015. The emerging middle class stands at 2 billion people who spend $6.9 trillion a year, a figure which is expected to rise to $20 trillion (twice current U.S. consumption), by 2020, according to researchers. And how about this: 700 million people will start using the Internet in Asia in the next five years, according to a McKinsey study.
China’s Great Leap Forward
I’ll tell you about two new ETFs that will give you exposure to these ideas. But first, here are some new brands in China, according to Trendwatching:
— Forever is a Shanghai based bicycle brand founded in the 1940s. Having fallen out of favor in the 1990s, the brand has now relaunched under the leadership of 23-year-old Chen Shan. It offers a range of bikes in bright colors, appealing to younger consumers. The company now sells 1.3 million bikes a year.
— Liba, TeamBuy, Taobao, EnjoyMeiTian, GetGoGive and FlashBuy all enable “group buying” as a shopping strategy, connecting hundreds of thousands of like-minded consumers. The sites make money from ad revenue and/or commissions from suppliers who want mobs at their store.
— Bus manufacturer King Long has an annual production exceeding 1,300 coaches for domestic and international clients. In September 2010, the brand announced a deal with U.K.-based Arriva for 200 buses to be sent to improve Malta’s operations.
— OSPOP (One Small Point of Pride) was the first footwear brand to use Chinese workers as not only the manufacturing labor, but also the product’s design inspiration. The shoes are based on a style commonly worn by Chinese laborers but constructed with superior materials, positioned at a premium price of $75.
— Consumer electronics brand giant Haier surpassed Whirlpool as the world’s top refrigerator producer two years ago and achieved a global market share of 12.4% in 2009, according to a survey conducted by research firm Euromonitor International that was cited by the Xinhua news service. Xinhua reports the firm has 60,000 and operates in 100 countries.
— Cosmetics giant Shanghai Jahwa re-launched its “Shuang Mei” brand under the name “Shanghai VIVE.” Its initial product line, aimed at the emerging affluent female demographic in China, includes cosmetics, jewelry and accessories, with prices ranging from US$44 to US$221.
— Great Wall Motor is China’s biggest manufacturer of SUV vehicles. In 2010 the company teamed with Bulgarian Litex Motors and is set to open a 50,000 vehicle per year factory in Bulgaria in 2011.
— In 2010 sportswear brand Li Ning pulled equal with Adidas as the No. 2 sports brand after Nike in China. Last year it released an eco-friendly shoe called the “Green 001.” The shoe is made from materials such as hemp, and the marketing campaign communicates to Chinese consumers that “Environmental Protection = Trendy.” The tongue of the shoe is embroidered with the image of Wangari Muta Maathai, the founder of the Green Belt Movement and the first environmentalist to win the Nobel Peace Prize.
— Peak Sport is a Chinese sportswear company that has expanded from its founding in 1989 to more than 5,500 retail outlets across China, supported by a range of international sponsorship deals including national soccer and basketball teams and some NBA players.
— Regarded as the first Chinese luxury brand, NE Tiger has become a global leader in haute couture for furs, evening gowns and wedding clothes. The brand has studios in the United States, France, Italy and Russia.
— In September, telecom giant Huawei released the Ideos, an affordable smartphone preloaded with Google’s Android operating system. The Ideos is the first smartphone designed by a Chinese company and intended for the global market, with releases expected in Europe, North America, Latin America and Asia.
India’s Surge
India’s consumer-sector leaders, according to Trendwatching, also show great promise:
— Since 2009, Tata Motors (NYSE: TTM – News) has provided the world’s cheapest car, at US$2,200, the Tata Nano. The automaker reportedly will roll out an electric version in 2011.
— Taj Hotels Resorts and Palaces, a division of Tata, own and operate 76 hotels (including The Pierre in New York), seven palaces, six private islands and twelve resorts in 12 countries.
— In 2009, Tata also announced the Shubh Griha brand of tiny apartments in Mumbai that sell for US$7,800 to US$13,400 each. These are aimed at call center employees with 10- to 20 years experience, who earn on average about US$6,400 a year.
— IndiGO is an Indian based low-cost airline servicing 22 destinations across South Asia. The company is looking to expand rapidly, with 100 Airbus aircraft expected to arrive in 2015 and plans to add another 150 to the fleet by 2025.
— Low-cost carrier SpiceJet is the most profitable airline in the country and commands the second-largest market share in the low-cost category.
— Kingfisher Airline has attained 26% market share within just four years of operation, flying 400 times daily to 69 Indian destinations.
— Mahindra Tractors is one of the top three tractor companies in the world, operating in 10 countries, and is No. 1 in sales in India — the largest tractor market in the world. Exports during the month of September 2010 were 1,181 units versus 627 units for the same period a year ago, an increase of 88%. The company launched 13 new models in the U.S. for 2011.
Talking About Turkey
— Turkish Airlines has purchased 90 more aircraft and become major sponsors of Barcelona and Manchester United football clubs in a bid for rapid expansion.
— Household appliance manufacturer Arcelik employs more than 17,000 people, and sells in more than 100 countries.
— Food and beverage producer Ülker acquired Belgium’s Godiva Chocolate for $850 million in 2007 and has since expanded global operations to achieve global sales of $1.5 billion, employing 11,000 people.
— Mapenvelope launched in early 2010 by Istanbul-based graphic designer Beste Miray as an application that allows users to select a location in Google Maps and then print the location with a personalized message. Once printed, the cut-out graphic turns into the inside of an envelope and can be sent to a friend via old-fashioned snail mail.
South Africa Openings
— Fashion house Stoned Cherrie is famous for its use of images of apartheid-era heroes in its designs. In 2010, 48 Stoned Cherrie stores-within-a-store were rolled out in Foschini, a women’s clothing chain, nationwide.
— Fenomenal Woman sells a portfolio of life insurance products specifically targeting women.
— Great Guide is a GPS triggered audio tour that hooks up to car radios and broadcasts stories and facts when driving past points of interest
— South African chicken restaurant franchise Nando’s has expanded successfully across 28 international markets, often with controversial advertising campaigns that are banned by censors shortly after airing.
Bank on Brazil
— Farinha Pura is a bakery in Rio de Janeiro, Brazil, which is using Twitter to promote its freshly baked goods. The bakery tweets every time a fresh batch of bread comes out of the oven.
— Insurance company Porto Seguro (PSSA3.SA – News) offers free maintenance services at the homes of clients. If a customer’s refrigerator breaks, they can call Porto Seguro and a technician will pay a free house call and fix whatever is broken.
— Brazilian based Marcopolo S.A (POMO3.SA – News) is the country’s leading bus manufacturer, exporting to over 60 countries and providing over 50% of Brazil’s buses. The company employs 10,000 people with revenues exceeding US$10 billion annually.
— Embraer (NYSE: ERJ – News) is one of the top three aircraft manufacturers in the world. It has 17,000 employees and has a US$15.2 billion order backlog. In October 2010, Embraer suggested plans to develop very-long-range business jets, entering a sector currently dominated by Gulfstream, Bombardier, and Dassault.
— In December, luxury hotelier Fasano will venture outside Brazil for the first time to open the Las Piedras Resort in Uruguay. The resort will feature a private beach, equestrian center, golf course, spa, and polo fields.
— In July 2010, flip-flop maker Havaianas and U.S. t-shirt website Threadless launched a series of limited edition flip flops. The shoes were the winners of a design contest hosted on the website. Submissions for the competition were received from around the world.
— Ellus is a Brazilian jeans wear brand, which is distributed in over 70 flagship stores in Brazil and in retail stores across Europe, Asia and the US.
Global Marketplace
-— Juan Valdez Café, based in Colombia, is a multi-national coffeehouse chain with 120 outlets domestically. It plans to open shops n Latin America, the U.S., and Europe, as well as distribution in Wal-Mart Stores in the U.S. and 650 supermarkets in South Korea.
— Rwandan coffee franchise Bourbon Coffee operates a coffee shop in Washington D.C. and is planning to open more in New York and Boston.
— The Magno AM/FM radio is hand-crafted using sustainable materials in an Indonesian village. Profits from sales go to initiatives supporting the producers, such as the education in handicraft and work skills and the growth of plantations for wood used to make the products.
— In June 2010, bamboo bicycle-making enterprise Bambike launched a new set of bike designs with headlights. Bambike employs people in rural Filipino villages to create the frames of the bikes from local bamboo plants.
Two regional exchange traded funds focused on consumer products opened this year. To take advantage of this trend, consider Global X China Consumer (CHIQ – News) and Global X Brazil Consumer (BRAQ – News). I’d bet these funds grow a lot more than the broad U.S. and European markets over the next five to 10 years.
And besides, CHIQ gives you exposure to one of my favorite consumer company names: Want Want China Holdings (0151.HK – News). My guess is you’ll soon find its Hot-Kid Milk at a Safeway near you.
Jon Markman is a money manager and investment adviser in Seattle. For more ideas like these, try a two-week trial to Markman’s daily investment newsletter, Strategic Advantage , published in partnership with MarketWatch, or his daily trading newsletter, Trader’s Advantage . His Twitter feed is @jdmarkman.
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