Profit From The Global Middle Class With These 5 Stocks
China'seconomy is slowing, Brazilian and Turkish citizens are in revolt, andcommodity prices have fallen sharply. It's no wonder that investors have pulled millions out of emergingmarket funds in the past few months.
Yet it's unwise to paint these markets with a broad brush. They may be experiencing sporadic hiccups, but they still possess one of the most dynamicinvestment themes of the early 21st century: rising middle classes that are fueling steadygains in consumer spending.
Let's look at China as an example. The world's second-largest economy had been witnessing double-digit gains in consumer spending, though the Chinese government just announced that the growth rate slowed to 6.5% in the second quarter of 2013. Developed economies in North America would love to generate that level of growth.
Take Indonesia as another example. As I noted earlier this month, autosales rose 17.8% in the first quarter of thisyear from the same period last year. Around the globe, you'll notice a clear trend: Exports fromemerging markets to China and elsewhere are slumping, but domestic consumption figures are relatively stronger.
Equally important, population figures suggest it's crucial to stay focused on emerging markets. They account for 3.39 billion citizens, compared to 786 million citizens in the developed world, according to theWorld Bank . And even with all of the current headwinds in place, emerging market economies are expected to grow 5% to 6% in 2014, according to theIMF , which is three times the projected growth rate of developed economies. Looking further out, strategists at McKinsey & Co. estimate that by 2027, 55% of the world'sGDP growth and 95% of population growth globallywill come from emerging markets in Asia, Africa, Latin America, and Eastern Europe.
U.S. Vs. China
Although China's population is more than four times larger than the U.S. population, we still spend more on certain items (and much more in per capitaterms ). Yet in areas like alcoholic beverages and tobacco, you are missing the boat if you invest only in U.S.-focused companies.
- In Turkey, for example, spending on home and personal care products is growing 15% annually, according to Euromonitor.
- Analysts at Citigroupnote that Brazilians spent $4.3 billion on deodorant last year, which is as large as the next two markets (the U.S. and the U.K.) combined.
- People in India use twice as much bar soap as toothpaste (whereas most countries spend more on bar soap than toothpaste).
The key takeaway is that the biggest growth in consumer spending is taking place far from our shores. So at a time when many other investors are abandoning these emerging markets, you need to stay focused on the global companies that serve emerging market consumers. Here are my current favorites:
1. Coca Cola (NYSE:KO )
2. Brown-Forman (NYSE:BF )
3. Mondelez International (Nasdaq:MDLZ )
4. Colgate-Palmolive (NYSE:CL )
5. BRF (Nasdaq:BRFS )
Risks to Consider: This could prove to be an off year for emerging markets if the China slowdown accelerates, so these should be viewed as long-term themes, not short-term trading opportunities.
Action to Take --> If you take the long view, the ongoing expansion in emerging market consumer spending is far from over. It may wobble a bit in the nearterm , but demographic trends point to growth rates over the next decade that should far exceed our market.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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