Cities in emerging markets are poised for an economic boom. A report just released by McKinsey Global Institute projects that the 600 largest urban areas will produce about two-thirds of global economic growth by 2025.
[caption align="alignright" caption="Mexico city"] [/caption]
" Urban world: Cities and the rise of the consuming class " says that most of that growth will come in 440 cities. The McKinsey Global Institute is affiliated with the consulting firm of McKinsey & Co.
According to the report, "One billion people will enter the global consuming class by 2025." That's like three United States or another India. It's a big change for emerging markets over little more than a decade.
This is part of a continuing shift in the world's center of economic gravity. The world's buying power is moving from the U.S. and Europe to Asia. It has been happening since the mid-1980s. The McKinsey report notes that "We expect this trend to continue, so executives and policy makers must be prepared to respond."
What's the best way for investors to respond? Look to stocks and exchange traded funds that will build, service and feed those new consumers. Investors should focus on the 440 "middleweights" of the study. These are the urban areas in emerging markets.
Here are some examples of stocks to watch:
Hollysys Automation Technologies Ltd. ( HOLI , quote ) is based in Beijing. It provides automation and control technologies and applications for industrial, railway, subway, and nuclear industries. These are vital for sustaining urban development.
Embraer ( ERJ , quote ) is a Brazilian jet aircraft manufacturer. It is well positioned to provide the aircraft for business and personal travel between these urban areas.
The PowerShares DB Agriculture ETF ( DBA , quote ) will profit from the more affluent diets of the expanding consumer classes in emerging markets.
According to the McKinsey study:
"Policy makers have a different set of challenges. In the developing world, the task is to manage growth in a way that avoids diseconomies of scale and creates the basis for sustainable economic performance. In the developed world, the goal is to maintain a healthy rate of growth through higher productivity, new business investments, and enhanced links with emerging regions."
All this is true. The report provides valuable insight on changes that are coming. Investors can use it to profit from the stocks and ETFs that will gain from these changes. These new cities are a map to the growing consumer power of emerging markets.