The emerging online consumer
Kim Catechis and Andrew Mathewson, Portfolio Manager for Global Emerging Markets discuss the long-term implications for the emerging market consumer and emerging market businesses.
There's a lingering perception that Emerging Markets investing is about resource companies. The crisis has cemented a shift in the index towards the emerging online consumer.
Kim: Hello, and welcome to the AFTERMATH. Today I have Andrew Mathewson with me from the Emerging Markets team.
Andrew, good to see you.
I want to talk about China a little bit to start with, particularly the e-commerce consumption story. What have you seen developing in terms of new trends as the country has gone through its COVID experience?
Andrew: Morning Kim.
Of course, we have seen trends that are very specific to the coronavirus situation, products that people are buying whilst they are stuck at home. Equally things they can’t buy, outdoor entertainment, that not available to them at the moment.
What’s more interesting for us is trying to asses the trends that are going to be lasting. What we observe is that the crisis is really delivered an acceleration in trends that were already well underway.
I think everyone will be familiar that China is already one of the leading e-commerce markets globally. And of course e-commerce has been a big beneficiary. But what’s interesting is if we go a bit deeper, what you’ll see in that actually in China, pre-crisis, online grocery was not particularly well penetrated, actually it was kind of in line with markets in Europe, in the mid-single digits. But of course, online grocery has been a huge beneficiary in recent months.
Another example would be out of home dining, so delivery services. And what we have seen there is high-end restaurants that have previously been reticent about signing up to some of these delivery platforms have changed their behaviour during the crisis and have signed up.
You know, of course some of these trends had a big benefit, and we will see some slip back as behaviour normalises, but of course some of the consumer habits that we have formed during this period will prove to be lasting.
Kim: Are there any learnings there, are there any expectations that are now built in for other markets?
Andrew: Well of course every market has its own nuances, but what we observe is that the high-level trends are similar across markets. Again, that’s where this crisis is accelerating the shift that was already underway, so for example the shift from brick & mortar, to the shift that’s online.
If you take a market like Brazil, for example, where historically the shift to online has been quite slow. This crisis is really seen us take a huge leap forward. You have about 70% of consumers in Brazil now with a smartphone. And online retail has rocketed in the last few months as consumers have signed up for the first time to platforms, put in payment details and experienced online shopping for the first time, and the convenience and choice that it’s brought them.
We think that those habits that have formed during this period will prove to be lasting. You know this is not something that's just going to change back as soon as the coronavirus kind of moves out of view. These consumers have learnt a new way of shopping, and we think that really this period has seen a great leap forward in that shift.
Kim: Yeah that makes sense Andrew, certainly matches what we're seeing elsewhere in other countries.
Can I ask if there's one thing that you think maybe investors are perhaps not ignoring, but perhaps not attributing the right level of importance to? What would you say that was?
Andrew: Well I think the point I'd made about the emerging market consumer is that it’s a young consumer, increasingly a digital native, they’re shopping and socialising online, they’re ordering food online, they're ordering a taxi through their phone, they’re booking entertainment through the phone, they’re saving and borrowing through their smartphone, and this really is the story of investing in emerging markets to date.
Historically the emerging market index was dominated by resource companies, and there's still this lingering perception that investing in emerging markets is about these cyclical businesses. But today, the index is dominated by consumer companies, financial companies and technology companies that are global leaders in intellectual property, benefiting from strong secular trends, and this crisis is only served to accelerate those trends, and to cement that shift in the index
Kim: Yeah those are good points, thank you Andrew.
Thank you very much for watching and I hope you find it interesting. Don't hesitate to get in touch, if you did or you didn't. And were going to have more interesting sectors to discuss over the next few weeks.
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