UBS picks five global stocks set to benefit as Chinese women spend more

Published Mon, Sep 20 20219:21 PM EDT

Evelyn Cheng @in/evelyn-cheng-53b23624 @chengevelyn

UBS analysts expect more single and affluent Chinese women will help drive as much as $5.3 trillion in household consumption growth over the next decade. "We expect the effects of the significant progress in Chinese women's education in the past 20 years to materialise, improving their social standing, particularly their status in the workplace," the analysts wrote in a Sept. 8 report. Based on a survey of 1,000 women aged 18 to 45 in China, the UBS analysts said these consumers' greater focus on quality, functionality and health — in addition to a higher spending budget — should boost sales for international companies in luxury, cosmetics, sportswear, beer, auto, travel, lodging and leisure. Women typically have "strong decision power" in family spending, the analysts said. They also expect consumption will increase as marriage rates fall and divorce rates rise, raising the share of single-person households in China to 25% in 2030, up from 19% in 2020. Overall, the analysts' model predicts $3.3 trillion to $5.3 trillion in household consumption growth by 2030 based on the rising influence of women in China's society. Here are five of their top picks for international brands: Richemont UBS found in its survey that Chinese women spend 21% of their discretionary income on luxury goods, higher than the 17% for men. One of the analysts' top picks in the category is Switzerland-traded luxury goods holding company Richemont . The company "offers the largest exposure to the jewellery category, with Cartier and Van Cleef & Arpels continuing to gain momentum," the report said. China is Richemont's largest market on a single-country basis. The mainland alone generated 4.37 billion euros in sales in the 12 months ended March 31, or 33% of global sales, the company said. The U.S. was the second-largest market, with 2.14 billion euros in sales. "Triple-digit sales growth in mainland China more than offset declines in locations affected by a halt in tourism, notably Hong Kong SAR and South Korea," the company said in its annual report released in May. Mainland China benefited from the repatriation of previously outbound tourist demand and increased domestic spending." L'Oréal French cosmetics group L'Oréal is a "leading player in the prestige skincare segment and e-commerce," the UBS analysts wrote. Despite the rise of domestic Chinese brands, the UBS analysts said their survey showed Chinese women are focused more on the quality and effectiveness of cosmetic products, rather than brand. That trend will help international names, especially those tapping the rise of online shopping, the report said. In the first half of this year, L'Oréal said sales in China grew 34.2% from a year ago to an undisclosed amount. The cosmetics company noted "very strong growth in e-commerce and salons" in the country. Volkswagen German auto giant Volkswagen "has strong EV launches and high exposure to [the] Chinese market, the UBS analysts said. "Chinese women's rising income, education level and social status are likely to further boost their demand for cars in the next decade," the report said. Volkswagen delivered nearly 1.85 million passenger cars in China in the first half of this year, growth of 16.2% from a year ago and more cars than the 1.58 million delivered to Western Europe during that time. Carlsberg "Driven by enhanced gender equality in education, increasing female income level, and women's active role in family spending decision-making, we expect female consumers to have an increasing budget per capita for spending on themselves," the UBS analysts said. "The consumption of alcoholic drinks is likely to become more gender-neutral, in our view." Danish brewer Carlsberg is the only foreign pick among the three beer stocks that UBS likes. The company has made inroads into China in the last decade with acquisitions of popular local brand Wusu, as well as brewery Chongqing Beer Group Assets Management. Overall, Carlsberg said its volumes in China grew by 23% in the first half of 2021 from a year ago. The company doesn't provide country-level sales figures, but its latest report showed Asia was second only to Western Europe by revenue in the first six months of this year. InterContinental Hotels InterContinental Hotels is the largest Western hotel operator in China, the UBS analysts said. "Due to females' higher purchasing power and higher requirement on travel experience, we expect hotel names with multi-brand strategy and leading mid-range and upscale brands to be the major beneficiaries," the report said. Greater China accounts for 8% global revenue for InterContinental, whose brands include Hotel Indigo, Crowne Plaza and Holiday Inn. The company said that while an industry measure of revenue in mainland China for the first half of the year was still 19% below 2019 levels, the business recovered in the second quarter as demand for domestic leisure grew in China's mid-sized cities. InterContinental Hotels is the only stock of the five above that UBS has a neutral rating on. The firm has a buy rating on the four other stocks. — CNBC's Michael Bloom contributed to this report.

People walk in a shopping mall in Beijing on June 21, 2021.

Greg Baker | AFP | Getty Images

UBS analysts expect more single and affluent Chinese women will help drive as much as $5.3 trillion in household consumption growth over the next decade.

"We expect the effects of the significant progress in Chinese women's education in the past 20 years to materialise, improving their social standing, particularly their status in the workplace," the analysts wrote in a Sept. 8 report.