A Brookings Institute report recently claimed that by 2030 Asian middle class spending will have tripled to around $24 trillion a year, which means companies that are positioned to benefit from this explosive growth could deliver great returns to investors.
In fact the report claimed that of the next 1 billion people to enter the middle class globally, 88 per cent will come from Asia. Much of the new middle class's spending will be on healthcare, travel, and other discretionary goods that are part of a wealthy lifestyle.
Of course it's no use just buying any business because it operates in Asia, as the fundamental rules of successful investing can never be ignored. You have to buy high-quality companies on reasonable valuations with strong outlooks.
Below I name five shares that tick the boxes as strong companies, although it must be noted some of their valuations may be a little frothy for now.
Treasury Wine Estates Ltd (ASX: TWE) – Australia is often lauded for its potential as the "food bowl" of Asia, but this retailer of major wine brands like Penfolds and Wine Blass has the potential to act as the "punch bowl" of Asia. The stock has nearly tripled in value over the past five years thanks to an Asian pivot away from the U.S. and there may be good times ahead. Selling for $12.98 the stock has a lot of growth priced in and looks a hold for now.
Sydney Airport Holdings Ltd (ASX: SYD) as the gateway to Australia for Asian holidaymakers, Sydney Airport is a clear beneficiary of the rising spending power of the Asian middle class. It has been posting mid-single digit growth in international visitors for several years now, with Chinese tourists one of the key growth drivers. This trend is unlikely to reverse over the long term, although given the rising interest rate cycle I'm not a buyer of Sydney Airport shares at today's valuation of $7.26.
A2 Milk Company Ltd (ASX: A2M) is the retailer of a2 protein only baby formula that has posted blockbuster growth over the last couple of years partly thanks to soaring Chinese demand. The New Zealand-based company also sells its a2 Milk to the adult population, with Australia being its core growth market for that product. The stock has gone gangbusters to hit $3.26 and while I like its outlook, I would rate it as a hold at today's valuation .
Blackmores Limited (ASX: BKL) is the vitamins business that has been operating in South East Asia for nearly 40 years and been steadily growing its sales in the region over that time. It's now starting to hit its straps in the giant Chinese market and is expanding its product mix all the time. This company has potential to post a strong FY 2018 and beyond, which means I think the shares look reasonable long-term value at today's price of $106.87.
REA Group Limited (ASX: REA) this pick is a slight stretch as the online property website's core business remains its realestate.com.au business, with other interests in the US. However, REA Group also recently spent around $750 million in total acquiring property websites across Hong Kong, Malaysia, Thailand, Singapore, Indonesia and the Philippines. Recently it also heavily invested in an Indian property business. These are the kind of businesses that offer big long-term potential, although patient investors should get an opportunity to grab REA Group shares at a price cheaper than $65.28.
Of the stocks above I would prefer Blackmores on current valuations, although there's another business with a big yield and big international expansion plans that is still on a much cheaper-looking valuation….
