How disruption changed the emerging market consumer growth story

3 October 2018

HOW DISRUPTION CHANGED THE EM CONSUMER GROWTH STORY

Over half of the global population under 30 live in Emerging Market countries.

EM consumer growth, a compelling theme

Emerging market (EM) consumer growth is one of the world’s most compelling investment themes.

Surging working-age populations, rapid urbanisation and a rising middle class continue to drive this economic megatrend, but accessing this growth story is now more nuanced than ever.

New, tech-savvy EM consumers

Over half of the global population under 30 live in EM countries. These increasingly wealthy, tech-savvy consumers have a voracious appetite for technology.

Aided by lowering costs of mobile devices, vast sections of EM populations have been able to leapfrog PC use entirely and connect to the internet through smartphones.

This rapid technology adoption has become a huge catalyst for promoting greater financial inclusion, accelerating e-commerce and thus raising aggregate consumption levels.

Consumer staples no longer the only answer

The emergence of internet retail platforms, online payment systems and unprecedented connectivity through digital ecosystems, has converged in emerging markets to dramatically and permanently change consumption patterns.

Technological disruption has created a paradigm shift in the opportunity set for EM. And accessing the EM consumer growth story is now far more nuanced than simply owning consumer staples companies.

Where once these firms benefited from factors including distribution strength, restricted consumer choice and low levels of competition, now their competitive moats are being eroded by the disruptive force of technology. Valuations have risen, but sales growth has declined significantly in the last 15 years.

On the right side of disruption

By contrast, emerging market companies that have embraced disruption are now world leaders across a range of different sectors, including financials, technology and consumer discretionary.

Alibaba, for instance, is the world's leading online retail platform, at the forefront of the global e-commerce market, which is valued at US$2304 billion and expected to grow more than 20% in 2018, taking almost two thirds of the overall growth of retail spending.

Meanwhile, emerging markets lead the way in fintech, with China, India and Brazil among the top countries in terms of adoption of fintech services.

EM companies are also at the vanguard of the hardware production which is enabling disruption. Companies such as TSMC, Samsung Electronic and SK Hynix have firmly secured their place in global supply chains for years to come.

Just the beginning...

In our view, this is just the beginning, with many of these businesses only at the foothills of their real potential. But identifying the winners from such monumental change requires patience, skill and a long-term mindset.

Martin Currie’s Emerging Markets team has a strong track record of recognising and understanding the potential of change in emerging markets. Our robust, differentiated and highly successful approach to Emerging Markets investing, based on the collaborative focus of a highly experienced team enables us to build concentrated portfolios of our strongest investment insights. Together, these capabilities form a powerful investment approach for our clients, one which we believe they can be confident will deliver exceptional long-term returns.

Past performance is not a guide to future returns. Please be aware that the information provided should not be considered a recommendation to purchase or sell any particular security. It should not be assumed that any of the securities discussed here were, or will prove to be, profitable.