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What is the average take-home pay for a 21-year-old in Shanghai? How many teenagers in Brazil have a smartphone? How do kids in Mumbai spend their pocket money? If you are even attempting to guess at answering these questions, stop. The haystack is too large to even start looking for the needle. What you should be considering is how your portfolio is angled to take advantage of the answers.
What investors have usually considered when looking at emerging markets is their cost of housing, their oil consumption, or how many pigs they consume a year—and although this is important, it is the young consumer that is going to drive the progress of these economies.
For the first time ever, it doesn’t really matter where consumers are. This is the beauty of technology. The internet cares not where you access your email account; mobile phones are helping people in Africa to access clean, running water, and guess what? Most of these countries don’t have huge debt piles their citizens have to pay off, rather than snap up new technology.
Generation F is the first to be truly global. The “F” stands for Facebook, the global phenomenon that welcomes people irrespective of color, race, or location. As developed markets deleverage huge amounts of personal and governmental debt, the middle classes in emerging markets are growing-and crucially, spending.
Virgine Maisonneuve, head of global and international equities at Schroders, is a firm believer in looking outside our cosseted home markets to find the new growth stories. She believes in Generation F. “Over the last two decades, the emerging market consumer class has doubled to 2.4 billion people, and by 2025 it is expected to [nearly] double again to 4.2 billion,” said Maisonneuve—who, previous to her current investment role, was a consultant with the French Ministry of Foreign Affairs in China. “The growing power of the emerging market consumer is not new news, but how to play it as investors is not always so easy. The trends and preferences of consumers in this extremely diverse group of countries will drive global innovation and shape demand in the decades ahead. As investors, it is important to identify which companies (listed both in the developed and developing world) are keeping up.”
A study from McKinsey & Co showed the percentage of income spent on food by Chinese households fell from 43% in 2000 to 28% in 2010. By 2020, the number is estimated to fall to 20%, the consulting firm said. At the same time, spending on communications increased from 4% in 2000 to 8% in 2010 and “recreation equipment” spending, which took up 2% of expenditure in 2000, is projected to rise to 8% in 2020. At the same time, remember that household consumption is set to rise from $64 billion in 2000 to $4.38 trillion in 2020.
Generation F is calling/texting/emailing. Are you ready to answer?