Many analysts expect EM to increase growth over the next decade. In the first half of the year China’s growth rate was 8.1% and has since dropped to 7.6% (no cause for concern). Two thirds of the decline can be attributed to slower investment because of world events and not slower consumption. One reason why China’s consumption hasn’t increased as fast as projected is because of the number of households with disposable income. 1.6 million of China’s households have disposable income of 150K compared to Japan which has 4.6 million and the US which has 19.2 million. This means that developed countries still have the advantage in terms of disposable income to purchase luxury goods. As more of China’s population shift into the middle class consumption will grow. According to Mr. Kharas’s projections Asia will account for 2/3 of the world’s middle class by 2030.
“Be fearful when others are greedy and to be greedy only when others are fearful” – Warren Buffet. Today everyone is fearful because of how markets performed over the last 5 years. This is a chance for our clients to participate in a growth opportunity not seen in decades. As the middle class increases in EM they will increase their consumption. Many will be buying a car, TV and house for the first time. It’s important for our clients to understand the consumption story and to participate in the growth opportunity today.
Sanyal, S. (2012, August 11). Who are tomorrow’s consumers? . The Globe and Mail. Retrieved August 13 2012, from http://www.theglobeandmail.com/commentary/columnists/who-are-tomorrows-consumers/article4476196/