Emerging markets insight

Emerging markets

Roughly 85% of the world’s population can be found in emerging markets and they contribute almost three quarters of global GDP growth, yet these countries still account for just 13% of the global stock market. As debt-ridden developed markets struggle to make economic headway, it could be time for investors to turn their attention towards the new global powerhouses. The dramatic differential between the market role and economic influence of emerging markets will not continue indefinitely.

Favourable demographics

The large majority of emerging markets have ‘bottom heavy’ demographic profiles, where a large proportion of the population falls into the most productive age bands between 25 and 59. This creates an abundance of low-cost labour to boost economic development. Cost-conscious consumers in the developed world favour cheaper goods and services, playing to Asia’s competitive manufacturing strengths.

The natural resource advantage

90% of the world’s proven oil reserves are to be found in emerging markets. Likewise, commodities such as copper, gold and platinum are abundant in Latin America. These riches have been successfully harnessed through the development of world-leading producers such as Chile’s Codelco, and Brazil’s Vale. Looking ahead, demand for raw materials is increasing in both emerging markets, as their population moves from rural areas into the city and necessitates the building of new infrastructure, and in the developed world, as ageing infrastructure is replaced.

The rise of the consumer society

Whether it is from manufacturing or commodities, there is no escaping the fact that wealth in the emerging markets is on the increase. The expanding middle classes of the developing world are eager consumers, keen to emulate western lifestyle, and so western companies are rapidly rolling out their brands to take advantage of this trend. However, local competitors are also expanding apace to cater exclusively to the tastes of the emerging market consumer.

As consumption increases and local wealth is invested in infrastructure, domestic demand is replacing the traditional reliance on international trade. Emerging markets are no longer just another link in the global supply chain – they are becoming end markets in their own right.

Source: Focus Capital, October 2009. UN World Population Prospectus, 2008. BP World Statistical Review of World Energy, 2009.