Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 105

Avoid the fast buck from fast food

We sit in the office of the Chief Executive of one of South East Asia’s leading business families, high above the bustling streets below. The group’s sprawling interests range from property development to a leading airline. But the jewel in the crown is an emerging, pan-regional snacks (fast food) business. We are invited to try some samples and we spend the next five minutes examining the various cake bars, potato chips and cookies on offer. None look especially appetising or close to healthy. As we turn over the packets in our hands, doing our best to discern ingredients, we recognise and find some nutritional information. Several ‘chocolate’ products do not appear to contain any cocoa. Slightly bemused, we raise this point with our host. He explains that the company finds it cheaper and easier to simply use vegetable fats as a substitute, and add more sugar to preserve a taste of sweetness.

Consequences of Asian incomes rising

As the disposable incomes of tens of millions of Asians rises, so does the demand for more variety and convenience in food. The sales by domestic companies serving local tastes as well as those of multinationals producing western fares have grown very quickly over the last 20 years. One consequence has been an increasingly rich universe of consumer staples companies available to investors in Asia.

However, it is clear that rising per capita income does not necessarily imply better nutrition. Much of Asia seems mid-way through a period of rapid growth in consumption of highly processed ingredients with high levels of salt, sugar and fat. Globalisation has ensured that the speed with which nutritionally poor quality food has become both available and affordable to large swathes of the urban population in emerging Asia has completely outstripped any education around sensible consumption.

The result is that large portions of the population in Asia are beginning to experience the types of non-communicable lifestyle diseases that are more often associated with older, richer and more developed western societies.

The prevalence of diabetes is now higher in Vietnam than in Japan and higher in Indonesia than Italy. Malaysia’s incidence of the disease ranks amongst the highest globally. Startlingly, rates in China and India are twice as high as in Australia, the UK or France. In countries with such large, in some cases ageing, populations and inadequate public health systems, it is no exaggeration to say that poor nutrition and the associated illnesses represents a potential health time bomb for the continent in the 21st century.

It is a tragic dichotomy that in the same Asia-Pacific region, far away from the bright lights of Hong Kong and Mumbai, live two-thirds of the world’s population of 800 million people who do not have enough food to simply live healthily. Malnutrition and stunting remains, despite the rapid economic progress of Asia over the last two decades, the norm for hundreds of millions of people in the region, primarily in rural areas in northern India, southwest China and the more remote parts of the Indonesian archipelago.

How sustainable is this?

It is within this extremely challenging and bewildering context that the team attempts to identify potential investee companies. As we meet companies around the region, we are constantly asking ourselves to consider the sustainability positioning of the businesses we meet. We set out to find those which are best positioned to contribute to and benefit from sustainable human development in the region over the next ten years.

In the area of food and beverages, that means trying to find companies that we think can continue to increase sales in a profitable way over the next ten years, governed by sensible management teams who will deliver reliable and steadily growing cash flows to shareholders. Often, this means seeking out those companies focused on increasing rural, bottom of the pyramid consumption and those products which are truly needed by the end-user.

We are trying to find companies whose products, by their nature, are well-positioned for future health and wellness trends. In countries around the world, the manufacturers of excessively unhealthy products are facing headwinds to earnings growth. This is coming on one hand from changing consumer preferences, reflecting a growing underlying awareness of health issues around sugar and salt consumption. At the same time, governments are throwing up barriers in the form of heavier regulation and special taxes in the knowledge that such products can create significant costs for society which will be borne through the public purse via future health spending.

These headwinds are relevant long-term investment points in Asia not 20 or 30 years from now, but today. Just as Asia has experienced an increase in these problems earlier and faster than the west did, the region may begin to address them at a pace that few currently expect. Consequently, we consider a rupee or baht of earnings from selling milk or oatmeal to be far lower risk than earnings from selling snacks made from vegetable fats and sugar. Investing in the former seems a far more sober and responsible way of preserving and growing clients’ capital over time in a low-risk manner.

 

Jack Nelson is an Investment Analyst at First State Stewart (part of Colonial First State Global Asset Management).

 

banner

Most viewed in recent weeks

The nuts and bolts of family trusts

There are well over 800,000 family trusts in Australia, controlling more than $3 trillion of assets. Here's a guide on whether a family trust may have a place in your individual investment strategy.

Welcome to Firstlinks Edition 581 with weekend update

A recent industry event made me realise that a 30 year old investing trend could still have serious legs. Could it eventually pose a threat to two of Australia's biggest companies?

  • 10 October 2024

Welcome to Firstlinks Edition 583 with weekend update

Investing guru Howard Marks says he had two epiphanies while visiting Australia recently: the two major asset classes aren’t what you think they are, and one key decision matters above all else when building portfolios.

  • 24 October 2024

Warren Buffett is preparing for a bear market. Should you?

Berkshire Hathaway’s third quarter earnings update reveals Buffett is selling stocks and building record cash reserves. Here’s a look at his track record in calling market tops and whether you should follow his lead and dial down risk.

Preserving wealth through generations is hard

How have so many wealthy families through history managed to squander their fortunes? This looks at the lessons from these families and offers several solutions to making and keeping money over the long-term.

A big win for bank customers against scammers

A recent ruling from The Australian Financial Complaints Authority may herald a new era for financial scams. For the first time, a bank is being forced to reimburse a customer for the amount they were scammed.

Latest Updates

Property

Coalition's super for housing plan is better than it looks

Housing affordability is shaping up as a major topic as we head toward the next federal election. The Coalition's proposal to allow home buyers to dip into their superannuation has merit, though misses one key feature.

Planning

Avoiding wealth transfer pitfalls

Australia is in the early throes of an intergenerational wealth transfer worth an estimated $3.5 trillion. Here's a case study highlighting some of the challenges with transferring wealth between generations.

Retirement

More people want to delay retirement and continue working

A new survey suggests that most people aged 50 or over don't intend to stop work completely when they reach retirement age. And a significant proportion of those who delay retirement do so for non-financial reasons.

Economy

US debt, the weak AUD and the role of super funds

The more the US needs capital and funding, the higher its currency goes. For Australia, this has become a significant problem as the US draws our capital to sustain its growth, putting pressure on our economy and the Aussie dollar.

Investment strategies

America eats the world

As the S&P 500 rips to new highs, the US now accounts for a staggering two-thirds of the world equity index. This looks at how America came to dwarf other markets, and what could change to slow or halt its momentum.

Gold

What's next for gold?

Despite a recent pullback, gold has been one of the best performing assets this year. What are the key factors behind the rise and what's needed for the bull market in the yellow metal to continue?

Taxation

Consulting on the side? Don't fall into these tax traps

Consultants must be aware of the risks of Personal Service Income rules applying to their income. Especially if they want to split their income or work through a company.

Sponsors

Alliances

© 2024 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.