Today, not much has changed. In a world in which most developed markets are struggling with too much debt and too little growth, few themes get investors more excited than the prospect of benefitting from the billions of relatively debt-free consumers in emerging markets. Across the globe, emerging market growth continues to create hundreds of millions of new middle-class consumers. By 2025 China, India and Brazil are respectively expected to be the 2nd, 4th, and 9thlargest consumer markets in the world.
Market Realist – Many emerging markets could soon be massive consumer markets.
The GDP (gross domestic product) of emerging markets (EEM) is no longer growing at double-digits like it used to not too long ago. However, it’s still growing at a much better pace than most developed markets (EFA). The graph above shows this trend.
Although China (FXI) has slowed down considerably, it’s still growing more than 7% annually. Also, Chinese government officials seem committed to a growth rate above 7%.
The new government in India is also looking at making several reforms that could boost the Indian economy.
Indonesia (IDX) has seen an average GDP growth of 5.8% in the last ten years, mostly driven by consumption.
Robust growth leads to higher corporate profits and more jobs. This leads to higher disposable income, which propels consumption. This, in turn, supports GDP growth, starting a virtuous cycle.
However, commodity-driven economies like Russia (RSX) and Brazil (EWZ) may have to endure a hard time in the coming months as commodity prices slip. With the US dollar (UUP) strengthening, commodities like oil (USO) could stay low. This is mainly because commodities are priced in US dollars. When the value of the US dollar drops, it will take more dollars to buy commodities.