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Hey, big spender

Over the next 20 years, the World Bank estimates the middle class will expand to 800 million people globally. As part of this expanding middle, there is an increasing number of younger consumers with more disposable income and a greater propensity to spend.

These structural changes are shifting patterns of consumption in such a way that the luxury goods market is forecast to grow to $1trn by 2020, according to research from Morgan Stanley. Shrewd investors will benefit from this increased demand.

Unsurprisingly, the majority of this growth is set to come from Asia, with the World Bank predicting that 50 per cent of the new middle class will be Chinese or Indian in nationality.

China is also home to the most billionaires in the world, ahead of the US. Furthermore, a high proportion (80 per cent) of China’s consumers are under 45 and these new consumers are globally aware and optimistic about their economic future.

They grew up during a period of accelerated economic growth in China and have witnessed rapid improvement in their quality of life. Unlike their forebears who lived through civil war and a cultural revolution, this generation has enjoyed a stable political environment and experienced at first hand the success of China’s open door policy to other cultures and lifestyles.

As a result, I believe China is set to overtake Japan as the world’s biggest luxury consumer, spending four times more on luxury items than the worldwide average.

But luxury consumer spending does not end in Asia. In European cities such as London or Paris, the biggest luxury spenders are Chinese.

Demand for luxury goods, particularly in emerging markets, is growing at a high rate and it is large, respected Western brands with already well established distribution networks that are benefiting. This global demand for luxury goods is a key investment theme within the JP Morgan global consumer trends fund and is helping to drive performance.

Luxury brand companies have reported impressive numbers compared with figures for 2009 and while China’s contribution to this is significant, demand in the West and particularly the US remains robust. The fund takes advantage of this growing consumer aspiration in Asia, the Middle East, Europe and the US.

The fund was launched in April 2008 at the start of an extremely turbulent period for world stockmarkets, yet it has performed exceptionally well. Over the last quarter, it returned 9 per cent by the end of September. It has returned 44 per cent since inception, outperforming global equity markets by 37 per cent. The fund is diversified across sectors and regions and the alpha generated by the fund has come from a very broad range of companies, including a selection of luxury stocks such as LVMH, Gucci, Guess and Tiffany.

Peter Kirkman is manager of the JP Morgan consumer trends fund


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