If you’ve ever shown any kind of online enthusiasm for pampered pets, YouTube may have obligingly steered you to a channel named Xing’s World. If not – well, you’re seriously missing out.
Xing’s World charts the exploits of Xing Zhilei, who has built a painstaking and perfectly scaled recreation of a town for his cats. Everything in this mini-metropolis – from the cinema to the subway system to the exquisitely crafted branch of ‘MeowDonald’s’ – is fully functional. It’s so eye-popping that viewers frequently assume it must be the work of AI.
There’s a lot to be said for spending a few minutes watching Xing’s implacable Maine Coon, Mr Nice, riding the train from his plush apartment to the shops. Nothing could be further removed from the modern-day misery of doomscrolling.
Believe it or not, though, there’s also an investment lesson in there somewhere. It concerns the search for high-quality companies in Asia’s biggest and most dynamic market.
This is because Xing, as you might have guessed, is Chinese. Beyond the sheer spectacle they provide, his endeavours can tell us something about consumerism – and, by extension, the routinely unrecognised investment opportunities – in the second-largest economy on Earth.
Food for thought
The number of pets in China reached 430 million in 2024 and is expected to hit 570 million by 2029. It has been estimated that the country’s pet industry will be worth in excess of $160bn within the next three years.
What explains this dramatic trajectory? In many cases the answer lies in the cost of getting married, which is so prohibitive in China that staying single is often deemed not just eminently sensible but financially essential.
In the absence of wedded bliss, pets are filling the void. Moreover, many of them are spoilt rotten – maybe not by Mr Nice’s spectacular standards but undoubtedly by the relatively modest standards of four-legged friends in most countries.
This is why we invest in Yantai China Pet Foods. It’s not a name likely to be familiar to most investors but it’s one that ought to resonate with anyone who appreciates the powerful trends shaping China’s consumption patterns.
Why? Because China is an unrivalled hotbed of pent-up demand. Billions of resolute savers are increasingly finding reasons to begin spending again – and when they do spend, as is currently happening in the arena of high-end pet food, they’re likely to spend big.
Who benefits?
It was calculated in late 2024 that China’s household bank accounts had experienced a net rise of around $9.8trn since the start of the Covid-19 pandemic. That’s more than double Japan’s GDP during the previous year.
In addition, this extraordinary amassing of funds has taken place in an economy that is becoming ever more domestically focused. Home-grown brands are gaining in popularity, whereas imports have basically flatlined.
All that remains is for the government to successfully revive the full might of consumerism. When this has been achieved, all else being equal, Chinese businesses are likely to reap the bulk of the benefits.
Smaller companies – that is, those valued at less than £5bn – could be particularly well positioned to prosper when the bottle is finally uncorked. A fundamental challenge for investors is to unearth these hidden gems.
Relying on the wider investment analyst community tends to be less than useful, as these businesses rarely attract mainstream attention. Even soaking up every episode of Xing’s World might not do the trick. So what can be done?
In search of opportunities
In our view, to truly appreciate what’s taking place in China – or any other Asian economy – it’s necessary to have a presence there. We regard on-the-ground insight as the key to identifying the investment opportunities that the herd routinely overlooks.
Ultimately, we’re looking for businesses that are capable of delivering structural growth over time. Almost inevitably, these stocks can also help diversify broader portfolios across multiple dimensions – most obviously by region, market capitalisation and sector/industry – and therefore reduce concentration risk.
Historically, many investors may have given little thought to such possibilities. The persistent outperformance of a handful of US mega-caps has discouraged them from casting their nets further afield.
But times have unquestionably changed. Volatility and uncertainty are now shedding ever more light on the potential wisdom of exploring the investment universe to the full. As a result, it may well pay to remember that in China – both in Xing’s World and beyond – small can be beautiful.
Xin-Yao Ng is co-manager of Aberdeen Asia Focus plc. The views expressed above should not be taken as investment advice.