Great expectations ... Deutsche Bank global strategist Sanjeev Sanyal says expectations of Asian demand for luxury goods need to be “recalibrated”.
Much has been made of burgeoning wealth in Asia – particularly China and India – but Deutsche Bank global strategist Sanjeev Sanyal suggests weakening sales of high-end goods indicate that the pickings in the region aren’t as rich as many of the world’s luxury houses might have thought.
Sanyal uses disappointing June quarter financial results from luxury goods makers to riff on consumption patterns in Asia, saying that while there are clouds hanging over the Chinese economy a slowdown in growth “cannot really be blamed for slower sales of luxury goods or empty malls”.
He defines rich as households with a disposable income of more than $US150,000 a year and notes that while China has 1.6 million households that fit this definition, it’s just a shadow of the 4.6 million rich households in Japan and 19.2 million in the US.
So, rather than reflecting a deep pool of wealth, the Deutsche strategist suggests the 30-40 per cent compounded growth rates in the luxury goods market came merely off a low based that’s increasingly well tapped.
“This does not mean that growth opportunities in emerging markets have disappeared, but expectations do need to be recalibrated,” Sanyal writes in an article posted to Project Syndicate.
“Despite the economic boom of the last decade, China still has 164 million households that can be called “poor” (with annual disposable income of less than $US5000) and another 172 million that are “aspirant” (between $US5000-$US15,000). Similarly, India has 104 million poor households and 107 million aspirant households.”
Instead, Sanyal reckons businesses should look to the rise of the middle class in Asia for the real wave of consumer spending growth.
“A study by the economist Homi Kharas of the Brookings Institution gives us a sense of the scale of this change. He estimates that 18 per cent of the world’s middle class lived in North America in 2009, while another 36 per cent lived in Europe. Asia’s share was 28 per cent (after including Japan),” he writes.
“But Kharas’s projections suggest that Asia will account for two-thirds of the world’s middle class by 2030. In other words, Asia will displace not just the West, but even other emerging regions. This is the real business opportunity.”