One of the most important trends of our time is the rise of the global consumer. Millions of people throughout the world are enjoying a better lifestyle than their prior generations could have imagined. This improvement in the standard of living of so many people is a trend that has decades to go. This long-term trend is truly transformational to the global economy and provides some significant investment opportunities. Of course, I am talking about the rise of the consumer class in the emerging markets of the world. China and India are leaders in the great consumer wave, but the same thing is happening in other parts of the world like Latin America and Africa. Researchers estimate that by 2025 the ranks of the “consumer class” (those with disposable income) will rise from about 2.4 billion today to 4.2 billion by 2025. If these projections hold true, there will be more people in the middle class than poor for the first time in history.1
There is no doubt that this trend offers a tremendous opportunity to both large multinational corporations and local business domiciled in these growing markets. Millions of new people joining the middle class mean a sizable increase in purchases of goods and services that go toward an improved standard of living. In 2010 consumer spending in the emerging markets was $12 trillion. Those markets are expected to grow to about $30 trillion of spending by 2025, which would comprise nearly half of all global spending at that time. Take a look at one sector for example; between now and 2017 developing countries are projected to account for about 70% of the increase in pharmaceutical sales. 1
Did you know that Chinese consumers have become the number one buyers of luxury goods in the world? Yes, they rank ahead of the Japanese, Europeans and Americans. China’s consumers now account for 25% of luxury spending worldwide. 1
Consider what is happening in Latin America. Demographically, Latin America has tended to have a few rich people, lots of poor and not many in the middle. This is changing and will continue to change. According to the United Nations Economic Commission for Latin America and the Caribbean, middle class households grew from 56 million to 128 million from 1990 to 2007. Overall, consumer spending in the region has increased from about $683 billion in 1990 to $2.7 trillion in 2010. 1
So does this mean we should invest everything in China or Latin America? Of course not. However, I believe it makes a lot of sense to pay attention to this mega-trend when we are allocating our investments. Long-term investors need make sure they have exposure to these fast growing consumer groups by using a combination of direct investment in the developing markets along with allocations to large global businesses and brands. Pay less attention to where a company is headquartered and focus more on where their customers are.
1. American Funds, The Long View, January 2013
Damien helps individuals invest and manage risk. He is a Certified Financial Planner™ professional and a principal of Walnut Creek Wealth Management. These are the views of Damien Couture, CFP® and not intended as investment advice. Additional risks are associated with international investing, such as currency fluctuations, political and economic stability and differences in the accounting standards. Your comments are welcome. Damien can be reached at 925-280-1800 x101 orDamien@WalnutCreekWealth.com.