Warning: Declaration of action_plugin_safefnrecode::register(Doku_Event_Handler &$controller) should be compatible with DokuWiki_Action_Plugin::register($controller) in /home/public/dw/lib/plugins/safefnrecode/action.php on line 14

Warning: Declaration of action_plugin_blog::register(&$contr) should be compatible with DokuWiki_Action_Plugin::register($controller) in /home/public/dw/lib/plugins/blog/action.php on line 0

Warning: Declaration of action_plugin_blockquote::register(&$controller) should be compatible with DokuWiki_Action_Plugin::register($controller) in /home/public/dw/lib/plugins/blockquote/action.php on line 0

Warning: Declaration of action_plugin_include::register(&$controller) should be compatible with DokuWiki_Action_Plugin::register($controller) in /home/public/dw/lib/plugins/include/action.php on line 0

Warning: Declaration of action_plugin_popularity::register(&$controller) should be compatible with DokuWiki_Action_Plugin::register($controller) in /home/public/dw/lib/plugins/popularity/action.php on line 0

Warning: Declaration of action_plugin_redirect::register(&$controller) should be compatible with DokuWiki_Action_Plugin::register($controller) in /home/public/dw/lib/plugins/redirect/action.php on line 0

Warning: Declaration of action_plugin_captcha::register(&$controller) should be compatible with DokuWiki_Action_Plugin::register($controller) in /home/public/dw/lib/plugins/captcha/action.php on line 0

Warning: preg_replace(): The /e modifier is no longer supported, use preg_replace_callback instead in /home/public/dw/inc/auth.php on line 656

Warning: preg_replace(): The /e modifier is no longer supported, use preg_replace_callback instead in /home/public/dw/inc/auth.php on line 656

Warning: preg_replace(): The /e modifier is no longer supported, use preg_replace_callback instead in /home/public/dw/inc/auth.php on line 656

Warning: preg_replace(): The /e modifier is no longer supported, use preg_replace_callback instead in /home/public/dw/inc/auth.php on line 656

Warning: preg_replace(): The /e modifier is no longer supported, use preg_replace_callback instead in /home/public/dw/inc/auth.php on line 656

Warning: preg_replace(): The /e modifier is no longer supported, use preg_replace_callback instead in /home/public/dw/inc/auth.php on line 656

Warning: preg_replace(): The /e modifier is no longer supported, use preg_replace_callback instead in /home/public/dw/inc/auth.php on line 656

Warning: preg_replace(): The /e modifier is no longer supported, use preg_replace_callback instead in /home/public/dw/inc/auth.php on line 656

Warning: preg_replace(): The /e modifier is no longer supported, use preg_replace_callback instead in /home/public/dw/inc/auth.php on line 656

Warning: preg_replace(): The /e modifier is no longer supported, use preg_replace_callback instead in /home/public/dw/inc/auth.php on line 656

Warning: preg_replace(): The /e modifier is no longer supported, use preg_replace_callback instead in /home/public/dw/inc/auth.php on line 656

Warning: preg_replace(): The /e modifier is no longer supported, use preg_replace_callback instead in /home/public/dw/inc/auth.php on line 656

Warning: preg_replace(): The /e modifier is no longer supported, use preg_replace_callback instead in /home/public/dw/inc/auth.php on line 656

Warning: preg_replace(): The /e modifier is no longer supported, use preg_replace_callback instead in /home/public/dw/inc/auth.php on line 656

Warning: preg_replace(): The /e modifier is no longer supported, use preg_replace_callback instead in /home/public/dw/inc/auth.php on line 656

Warning: preg_replace(): The /e modifier is no longer supported, use preg_replace_callback instead in /home/public/dw/inc/auth.php on line 656

Warning: preg_replace(): The /e modifier is no longer supported, use preg_replace_callback instead in /home/public/dw/inc/auth.php on line 656

Warning: preg_replace(): The /e modifier is no longer supported, use preg_replace_callback instead in /home/public/dw/inc/auth.php on line 656

Warning: preg_replace(): The /e modifier is no longer supported, use preg_replace_callback instead in /home/public/dw/inc/auth.php on line 656

Warning: preg_replace(): The /e modifier is no longer supported, use preg_replace_callback instead in /home/public/dw/inc/auth.php on line 656

Warning: preg_replace(): The /e modifier is no longer supported, use preg_replace_callback instead in /home/public/dw/inc/auth.php on line 656
Taking advantage of growth in emerging market demand [ClearOnMoney]
Top

Site

About
Contact

Warning: preg_replace(): The /e modifier is no longer supported, use preg_replace_callback instead in /home/public/dw/inc/auth.php on line 656
Sitemap

Profile

Warning: preg_replace(): The /e modifier is no longer supported, use preg_replace_callback instead in /home/public/dw/inc/auth.php on line 656
Trace:
Taking advantage of growth in emerging market demand

Reference

Main
Updates
Schedule

Warning: preg_replace(): The /e modifier is no longer supported, use preg_replace_callback instead in /home/public/dw/inc/auth.php on line 656

Warning: preg_replace(): The /e modifier is no longer supported, use preg_replace_callback instead in /home/public/dw/inc/auth.php on line 656
Commentary

Taking advantage of growth in emerging market demand

4 Jan 2011 by Jim Fickett.

Growth in emerging market consumer demand is likely to be a useful trend to ride in coming years. The best way to take advantage of the trend is to find individual companies that benefit, without regard to where said companies are headquartered.

Today Arjun Divecha, of GMO, had a nice article in the Financial Times, entitled, Global stocks best way to tap domestic EM growth. He has two strong arguments for focusing part of the portfolio on growth in emerging market consumer demand: (1) a prototypical switch from savings growth to spending growth at a certain income level, and (2) demographics:

As poor countries get richer, they save as much as they can. Savings rates usually rise until countries reach a range of $3,000-$10,000 of gross domestic product per capita. Once in that range, savings rates begin to decline and consumption becomes a larger part of GDP growth …

Half of all emerging markets (by market capitalisation) are now in this sweet spot of shifting from savings to consumption. Further strengthening the economic case is a shift in demographics: a record number of people are coming into their earning years in emerging markets

OK, that's the easy part. Now how do you take advantage of this trend? It is currently popular to invest in ETFs with very simple definitions, covering large-cap global consumer companies, say, or small-cap stocks in one or more emerging markets. Divecha debunks these ideas, and argues that you really have to choose the companies you invest in one by one, looking to pick those that benefit most from a rise in EM consumer demand, without regard to where the companies are headquartered. Here is a part of his argument:

Favouring small-cap stocks rests on the presumption that large-cap emerging market stocks represent export-oriented and globally oriented businesses. As a result, removing these large-cap names from the investable universe would leave a collection of companies that are focused primarily on domestic demand. The first part of this contention is true, the second is not. Large-caps are geared highly to global demand. However, the small-cap universe alone does not represent a pure play on domestic demand and, in fact, is as exposed to globally sensitive sectors as large caps. …

A complete domestic demand universe should include multinationals that receive a substantial part of their earnings/revenues from emerging markets. While very few multinationals currently meet the test of being driven largely by emerging demand, they will become a larger part of this theme. While some commentators argue that investing in multinationals alone is the best way to access domestic demand, we believe that domicile is irrelevant. What matters is whom they serve.

The best way to access demand from the burgeoning middle class in the emerging markets is to invest in companies globally that directly serve that demand, rather than using emerging market small caps or global multinationals as a proxy.

Divecha manages a fund along these lines, so he is talking his book, but the points are good ones.