It was once quoted in a commercial that raising a child in Hong Kong costs at least HK$4 million. What about keeping a pet? In the case of Labradors, it is estimated that the cost of food, veterinary care, grooming, insurance and miscellaneous expenses can add up to over HK$400,000¹.

Rapid growth in the pet market

There are three main reasons the pet market is worth watching. The first is its growth rate. The market for pet-related products and services globally has been growing at an annual rate of 5.8%², far outpacing the overall GDP growth. In 2016 alone, the global pet market reached HK$1.03 trillion. By 2025, it is expected to grow to approximately HK$1.58 trillion.

Secondly, "Pet Economics" is closely linked to the changing demographics. The world’s fertility rate has been on the low side. With many of them choosing not to procreate, young couples consider keeping pets instead. Moreover, the combined effect of a proliferating middle class and an aging population has also become a massive driving force for the pet economy.

In the US, the world's largest pet market, the number of pets has more than doubled since the 1970s, and the growth rate continues to trend upwards³. This phenomenon is not unque to the developed economies such as Europe and the US. A similar trend is identified in the emerging markets. In China, the number of households that own pets is approaching 100 million, and the total value of the industry is estimated at more than RMB 172.2 billion, more than three times that of five years ago⁴.

Pet-Related spending is not related to economic cycles

Third, in addition to a growing population of pets, the spending on them is also increasing as the loving pet owners see their companion animals as part of the family. A survey found that as many as 73% of the US pet owners said the amount they spend on their pets will remain the same regardless of the economic situation³. In other words, the pet market has defensive characteristics which allows it to ride through economic cycles.

This attitude towards spending is particularly evident among young consumers. Relatively, the new generation treats pets like family members and is willing to provide pets with better food and better medical treatment. Thus, in addition to daily necessities like food and toys, pet insurance is a flourishing space whereby the veterinary costs are rising at 8% every year across the globe¹.

Flexible Allocation Helps Capture Opportunities in the ‘Pet Economy’

Undoubtedly, these trends are pointing investors to new opportunities. This is about identifying the opportunities that will benefit most from the pet economy and focusing on companies that specialize in related products and services. This includes pet food manufacturers, animal insurance companies, e-commerce, pharmaceuticals and biotechnology companies. We believe that a proactive approach to investing provides the flexibility to capture rapid growth while reducing potential risks.

Sources: 1. 017-2018 APPA National Pet Owners Survey Debut / IDEXX Laboratories Inc. Investor Day Presentation 2017 / Grand View Research, März 2018 / Statista, 2018 / Zooplus, 2018. 2. "Petcare market booms as lockdown loneliness drives sales", J. Evans, Financial Times, as of 18 October 2020. 3. 17-2018 APPA National Pet Owners Survey Debut, Statista. 4. "China's pet economy jumps to record high", China Daily, as of 26 July 2019.