Investing In The Global Consumer

coca cola chinaWhen asked why he robbed banks, the infamous American bank robber “Willie” Sutton said “because that’s where the money is.”

Today, when we invest in multinational companies focusing on the global consumer, the answer is no different.

That is, in fact, where the growth is.

“Millions of people around the world are now beginning to have a lifestyle that not so long ago seemed unattainable,” write researchers at the American Funds, which manages more than $900 billion including more than $300 billion in investments outside the U.S.

That rise in consumption of newly-minted, middle-class consumers in the developing world has been called  “one of the primary engines of economic growth,” and it explains why we make sure the typical client portfolio we manage includes investments in companies catering to these new markets.

How much growth are we talking about? 

 “Researchers at the McKinsey Global Institute estimate that in 2025 there will be about 4.2 billion people in the “consuming class,” or those with disposable income. That’s nearly double the number in 2010.”

By 2025, emerging markets are expected to account for about $30 trillion, or nearly half of global spending. And consumption in these markets is growing much faster than in the U.S. or Europe.

How can investors capture this growth?  

One way is to invest directly in companies based in emerging markets, like Thailand, Peru, or India.

But you can also invest in multinational corporations based in the developed world, like Nestle in Switzerland, Coca-Cola in the United States, or Anheuser-Busch InBev in Belgium.  These companies derive a huge portion of their sales from consumers in the developing markets, yet have the regulatory framework and stability of developed world companies.

What type of consumption is growing? 

It goes far beyond soft drinks. Emerging market consumers are spending more each year on smart phones, computers and internet access; cars and scooters; prepared foods and beverages; cosmetics; private education; household goods ranging from pet food to laundry detergent; housing and furnishings; and healthcare and pharmaceuticals.

From Apple to Zara: factoids about consumption across the globe

  • Chinese consumers have become the world’s No. 1 buyers of luxury goods, ahead of the Japanese, Americans and Europeans. China also consumes 1/4 of the world’s beer. (Source: American Funds)
  • Almost 3/4 of the growth in pharmaceutical sales through 2017 will come from emerging market consumers. Only 28% will come from consumers in the developed world.
  • The red and white Coca-Cola logo is recognized by an astonishing 94% of the world’s population.
  • Speaking of Coke, the per capita consumption of Coke beverages in India is 11 per year, as compared to a global average of 89 per year. In China, Coke consumption is a little higher, at 38 drinks per person per year. In the U.S., that number is 403.
  • China is now the top market for smartphone sales, but growth is expected to be strongest in India, Indonesia, Russia and Brazil. (Source: mobiThinking)
  • In India, the average household sets aside 10% of its budget for private education, since education is seen as the passport to improving financial status. 32% of children participate in education outside of typical schooling. (Source: CreditSuisse)

 

About Mari Adam

Mari Adam, Certified Financial Planner™ and President of Adam Financial Associates Inc, has been helping individuals and families chart their financial futures for over twenty-five years. Have a question about your financial situation? Ask Mari!

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