One of our investment themes for the last decade was the steadily growing influence of the Asian consumer. Back in the early 1990s when I managed a portfolio of stocks of companies based in Hong Kong mainly, the idea then was to take advantage of the emerging Chinese consumer. Unfortunately, many, many US companies tried to get into the market only to realize that it was way too early - few companies had early success.
Back then the Hong Kong dollar was"pegged" to the US dollar just as the Chinese yuan is basically pegged to the US dollar today. That peg has been a great subsidy for the US consumer where she could buy high quality goods like clothing, home stuff and electronics at lower and lower prices. But there is always the flip side which has been the building of the great Chinese export machine - whereby the US consumer subsidized Chinese employment and export infrastructure investment. We all know where the profligate US consumer got us. So now we think it is time for China, India and other Asian economies to start consuming and helping out US employment. So far it's not working out so well as we have unemployment approaching 10%.
Morgan Stanley Asia’s chairman Stephen Roach discusses the roots and prospects of China’s next revolution led by the consumer below.
Asia has proven comparatively resilient against the current downturn, but hurdles still lie ahead. In order to maintain robust growth rates in the face of weak US demand, the region’s dynamic economies must stoke domestic consumption and embrace environmentally sustainable development policies. So says Stephen Roach, chairman of Morgan Stanley Asia and author of The Next Asia: Opportunities and Challenges for a New Globalization. In this video interview, Roach discusses prospects for increased integration and cooperation between the region’s economies, explores the pitfalls and potential for countries like India and Japan, and considers whether the “Asian Century” has finally arrived. Clay Chandler, Asia editor with McKinsey’s publishing group, spoke to Roach in Hong Kong in August 2009.
We are investing in companies like WalMart who some see as a low P/E grocer. We disagree. We think WalMart is a leader in building an efficient and economically profitable consumer supply chain. In F'10, Wal-Mart will open more stores (more organic square footage growth) outside the U.S. than inside (19.5 mm sq ft international vs 15.5 mm sq ft domestic). We noticed this shift with the international strategy when the company exited Germany and South Korea in October '06. It signaled a new direction for the international segment. The company would limit international investments to markets where Wal-Mart had the potential for a sustainable competitive advantage and significant market share due to its leadership in the development of the new markets' supply chain.
Management expects sizable multi-year cost reduction as it replicates best practices around the globe. Over time, it expects to bring the international operating margin (5.0% in F'09) in line with the U.S. Wal-Mart segment (7.3% in F'09).
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We own WMT and may buy more or sell it at anytime for any reason.
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