In e-commerce, China’s leads and the West follows: Perpetual

Alice Uribe

By

18/09/2018

Perpetual’s portfolio manager for global equities, Garry Laurence, says being aware of where people in different cultures are spending their time and money is key to his process for picking attractive companies in which to invest.

Large US-based companies such as Amazon are following the lead of those in China, where people have embraced e-commerce and online gaming much more widely than in other countries, Laurence said, speaking at the recent Investment Magazine Equities Summit in Melbourne.

“Online gaming is a huge market in Asia…There are about 560 million gamers, so it’s a very different psyche to, say, Western markets in the US, where a lot of people can’t get their heads around the fact that so many people are playing games,” he said. “What’s interesting is the amount of spending that is happening on gaming in China is twice as much as in the US, as a percentage of GDP, but [if you] look at other entertainment spending in China versus the US, it’s lower.”

Laurence mentioned the growth in people watching live streams of others playing video games or other types of activities, and pointed out that Amazon was following this lead with Twitch, its own live-streaming platform.

“If you look at China, you have live streaming platforms like Momo, which have up to 50 million active users…where you have thousands of people streaming their lives. It is something that has evolved quite quickly and you have players like Amazon trying to build out that industry from scratch,” he said. “Live streaming is not a concept we think about in the US or Australia today but it might be something that will grow quite quickly.”

E-commerce has also been embraced more widely in China than in other parts of the world.

“About 560 million people use [e-commerce site] Alibaba in China, which represents about 58 per cent of the e-commerce market,” Laurence said. “But if you look at the penetration of e-commerce in China, it’s already at 20 per cent, whereas in the US, it’s only 10 percent.

“So everyone thinks Amazon is this great big scale player but it represents only about 5 per cent of total retail sales in the US.”

Laurence believes ridesharing businesses such as Uber or China’s DiDi, which recently launched in Australia, were most at risk of potential failure.

“These are the ones that aren’t profitable and are being funded by private equity,” he said. “Alibaba and a lot of these tech companies spit out so much cash and that’s the beauty of their models.

“I don’t see any risk to the business models that are already profitable with rising rates, they’ll actually benefit if the private equity money starts to disappear and there is less competition in the areas they are playing in.”

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