Asia

Here’s What You Need To Know Before Investing In Asia

These days, it’s all about Asia…

Q1 hedge fund letters, conference, scoops etc

Asia

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It’s hard to come across a company that isn’t connected to Asia one way or another… or one that doesn’t generate at least part of its revenue from this part of the world.

Most of the world’s largest companies now consider Asia to be one of their largest (if not largest) markets.

For example, General Motors (Exchange: New York; ticker: GM) now sells more cars in China than it does in the U.S. – partly because it’s able to manufacture locally instead of having to ship millions of cars across the Pacific Ocean each year.

Procter & Gamble (Exchange: New York; ticker: PG), one of the world’s leading consumer goods manufacturers, gets one-fifth of its annual sales from Asia. The region is P&G’s third-largest market after the U.S. and Europe.

Meanwhile, Coca-Cola (Exchange: New York; ticker: KO) generates 15 percent of its revenue from Asia.

And seven out of McDonald’s (Exchange: New York; ticker: MCD) 20 largest markets (in terms of number of stores in operation) are in Asia.

These companies have been successful in Asia because they understand the market…

Always know your market

GM’s most successful model in China isn’t a Chevy Silverado pickup truck or the Equinox compact SUV (two of the top 10 best-selling passenger vehicles in the U.S.), but the Buick Excelle. It’s a four-door sedan designed for the Chinese market and sold only in China.

P&G understood the mass market in Asia couldn’t afford to buy things like soaps, detergents, shampoos and toothpaste in large plastic containers. So the company introduced sachet (a tiny plastic pouch) packaging that allowed consumers to buy in smaller quantities for less money, which has helped them crack the Asian market.

Meanwhile, McDonald’s added unique dishes to its menus in the Philippines, Japan, Thailand and China to cater to local tastes. (Care for sweet spaghetti or a cheese Tsukimi burger?)

Other companies haven’t been so successful.

Ride-hailing company Uber is one of the biggest success stories to come out of the U.S. this decade. Yet, it was forced to exit many Asian markets, including China, Singapore, Indonesia and the Philippines.

Why?

Because it didn’t understand the markets.

For example, in the Philippines, Uber insisted on credit card-only payments in a country that had a very low credit card penetration rate of less than 2 percent. Its competitor, Grab, offered cash payments right from the start.

The Gap (Exchange: New York; ticker: GPS), known for its affordable clothing in the U.S., is also floundering in Asia. Sales in the region are down 8 percent in the fourth quarter of 2018.

So what happened?

The Gap sells clothes with size varieties that don’t take into consideration the smaller frames of Asian consumers.

I’m not saying Uber and The Gap will never succeed in Asia. One day, these companies could find the formula for succeeding in the region. But while they’re trying to understand these markets, competitors are already profiting.

Knowing the Asian markets

We’ve written before about the importance of overcoming your home country bias to invest in other markets.

While your country’s stock market may be doing well today, one day it won’t. And that will leave you totally exposed to all the downside, with none of the upside of other faster-growing markets.

But before you invest outside your home market, make sure you take the time to understand the differences of other markets.

For example, while small cap stocks deliver better returns than large cap stocks in the U.S., the opposite is true for China – where blue chips have outperformed smaller companies over the long term.

There are also markets that are influenced by superstition.

We’ve also written previously about how some markets tend to do well after posting a positive return in the month of January. And how elections in Asia can result in a surge in the stock market.

Knowing these peculiarities will help you profit in Asian markets.

Good investing,

Brian Tycangco

Editor, Stansberry Pacific Research


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