Investors Betting on China's Millennials - Emerging Market Views

Investors Betting on China’s Millennials

“Millennials kill insert-traditional-product” headlines —covering everything from diamond rings to mayonnaise to traditional weddings — have become a cliché in the West.

But Southeast Asia’s largest bank, DBS, is betting on millennial consumer themes in the stock market, with an eye on China — and their stomachs.

“We all know today millennials are the biggest generation in the work force, so they have spending power,” Hou Wey Fook, chief investment officer at DBS Private Bank, said on Monday.

On the mainland, that impact is amplified, he said.

“In China, there are more millennials than in all of the people in the U.S.,” he said. In addition, “One young couple in China is bankrolled by eight people: parents, parents-in-law, grandparents and grandparents-in-law. That’s a lot of spending power.”

Hou noted that one of the ways best ways to that spending power was through its stomach; in a theme DBS is calling gastronomy. 

“In terms of dining out, they embrace convenience, not the traditional Chinese dinner that lasts from 8 to 11 o’clock. That’s not for the millennials: They like convenience. They crave for experiences,” Hou said.

“The beneficiaries, of course, are restaurant chains and food delivery companies.”

Ironically, DBS is tipping some big Western brands to play on China’s millennials.

For one, Starbucks is on the list in the bank’s second-quarter CIO report. The report pointed to the coffee chain’s 2,700 stores on the mainland, with plans for 600 more just this year.

Hou noted the company has a couple million Instagram followers, suggesting a solid connection with the generation.

DBS also pointed to Nestle as a pick, noting it recently invested US$7 billion in Starbucks’ consumer packaged goods, which the bank expected would expand opportunities in emerging markets.

To be sure, Western millennials may be facing ageist stereotypes of laziness and fickle habits — not unlike those the “slacker” Generation X was met with around 25 years ago — but just because they don’t shop like their parents, doesn’t mean they aren’t spending money.

To play that, DBS pointed to Japanese convenience store operator Seven & I Holdings. While the company gets 80 percent of its operating profit in its home country, expansion into the U.S., where the convenience store market is fragmented, offers potential, DBS said.

And despite at least one “millennials kill” headline blaming the generation for the demise of fizzy sodas, DBS tipped Coca-Cola as a play on millennial dining habits.

The bank pointed to Coca-Cola’s recent US$5 billion deal to acquire the U.K.’s Costa Coffee as a growth driver, particularly as the iconic soft drink maker moves into the ready-to-drink coffee market.

Ready-to-drink coffees, as well as packets of instant coffees, are a staple across Southeast Asia.

DBS also pointed to another counter-intuitive Western restaurant play on millennials: McDonald’s, saying improving wages for lower-income households should drive foot traffic, bolstered by diversified offerings of cafes, premium products and home delivery services.

Photo: Getty Images