Consumer discretionary expenditure in a recovering economy 0 comments

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The recession that followed the dot-com collapse in 2000 led to drops in investment and consumption all round the world, as unemployment rates rose and people rationalised their budgets and put off big purchases as they were buffeted by their losses on the stock market (loss of the "wealth effect") and a seemingly never-ending series of adverse news: the 9/11 US tragedy, corporate scandals such as Enron and Worldcom, war in Afghanistan and Iraq, and then the SARS crisis in Asia.

It can be argued that Asia's consumption trend was hit particularly hard as it was just recovering from an Asia-wide financial crisis in 1997, which had not affected the Western economies.

The world economy has recovered significantly over the last two years, in particular Asia, where the twin engines of future global growth are projected to lie: China and India. There is strong liquidity flowing through the Asian economies as a result of renewed foreign domestic investment, underpinned by the megatrend of outsourcing. There is a new sense of optimism among other Asian countries who now see China as a source of demand for their raw materials and products, rather than the previous pessimistic picture of loss of national competitive advantage due to higher wage costs. And in the US, economy growth is now taken as being so firmly on track that the primary concern is of inflation (to the effect that when there was a negative factory output report, share prices actually grew because it meant further rate hikes were less likely).

Piece all this together with the deferred consumption in 2001-03 and we get a benign macroeconomic picture of consumer confidence that should lead to a sustainable long-term trend of increasing consumerism, particularly in Asia, and especially the rapidly developing large economies of China and India.

In particular, consumer discretionary expenditure such as luxuries and durables are likely to outperform general consumption growth. To quote a few examples on the Singapore stock market, watch retailers such as Sincere Watch and The Hour Glass have reported strong revenue growth over the last two years. Osim has sold its high-end massage chairs well in both Southeast and Northeast Asia as it continues opening more stores. There is an Asian tourism boom that does not seem to have been affected by miscellaneous terrorist attacks or natural disasters, corroborated by the evidence of rising room rates and occupancy rates in hotels around the region, and soon to be further strengthened by the rise of the low-cost carriers.

Look to the consumerism trend that anchored America's long boom years in the 1950s and 1960s, from which today's global franchises such as P&G, Macdonald's, General Electric emerged, for a view of the Asian story of tomorrow.

References:
(1) Newsweek June 6/June 13: Frugal Is So Over