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Consumption Is a Significant Driver of Emerging Market Growth

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While Americans have turned their focus to saving and repairing damaged balance sheets, consumers in emerging markets have begun to spend more, fueled by rising income levels and increased financial security. Just one example—from 2002 to 2007, the number of mobile phone subscribers in developing countries grew by more than 700% to nearly 2.5 billion subscribers. Credit Suisse estimates the number of emerging market mobile phone subscribers to exceeded 5 billion in 2014.

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Market Realist – Consumption is a significant driver of emerging market growth.

As we saw in the previous part of this series, consumption has been the engine of growth in some emerging markets (VWO). The graph above compares the mobile cellular subscription in 2007 and 2013 in some emerging markets. Between 2007 and 2013, China’s subscriptions grew by 124.5%. Mobile cellular subscriptions in India (EPI) and Indonesia (IDX) grew by 279.3% and 235.37%, respectively, while Brazil’s subscriptions (EWZ) grew by 124.1% in the same period. These are some of the most populated countries in the world.

However, consumption growth in emerging markets hasn’t met the lofty levels that these markets were used to in previous years. This is because of lower commodity prices, low global demand, and low consumer confidence.

Yet consumption is bound to pick up as the economic cycle moves into the recovery phase. The prospects of profiting from emerging market consumers are mind-boggling. An English commenter reportedly said nearly two centuries ago, “If everyone in China lengthened their shirt tails by a foot, the textile mills of England would spin for a year.”

Meanwhile, despite lower oil (USO) prices, consumption hasn’t picked up in the United States (SPY). This is mainly because the average US household has used its savings at the pump to service debt or to save.

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