A consumer emerging market exchange traded fund can provide investors targeted exposure to a quickly growing segment of developing global economies.
On the recent webcast, The Emerging Markets Consumer is Online, Kevin Carter, Founder of EMQQ Index, pointed to five factors that support emerging market growth, including diversification benefits, total population, favorable demographics, economic growth and recent underperformance.
Richard Kang, Advisor for EMQQ Index, took a look at developing economies, with a specific focus on e-commerce and internet companies as a way to target the growing consumer base.
The emerging markets have exhibited diversification benefits, compared to U.S. and other developed markets, providing correlations that are less than 1.0 to the S&P 500. The developing world make up 85% of global population and 50% of global GDP. There is a much larger younger population in emerging countries than developed countries. The emerging markets are also characterized by faster growth rates. Lastly, after the recent multi-year underperformance, emerging stocks look undervalued and attractively priced, compared to U.S. equities.
Looking ahead, Carter pointed out that emerging market gross domestic product could eventually over take many developed markets. For instance, according to the World Bank, China and India’s economies could become larger than the U.S. by 2050.
Most investors seem to be underweight the emerging markets, at least based on global market capitalization. In a survey of financial advisors on the webcast, the majority of respondents, or 30.0%, indicated that they have a 5% to 6% allocation toward the emerging markets, followed by 22.6% of respondents showing a 3% to 4% allocation. In contrast, the emerging markets make up about 10% of the MSCI All Country World Index. However, 65.6% of advisors indicated that they will be increasing their emerging market exposure over the next six months.
The emerging consumer could sell to 4.2 billion people by 2025, with emerging market consumption accounting for $30 trillion, or almost half of the global total, Carter said.