Mirae Asset Global Investments Outlines Four Pillars Supporting Emerging Markets Consumption
Demographic Megatrends Underscore Firm's Great Consumer® Investment Strategy
July 8, 2013
In the first of two white papers, Mirae Asset Global Investments today outlined the fundamental factors it believes will drive the growth of the emerging markets' middle class, whose expansive consumption patterns will become the dominant force in the global economy in the coming decades. Entitled "Consumption Growth: Investing in Today's Emerging Markets," the paper identifies four basic pillars supporting this consumption boom -- urbanization, income growth, favorable demographics and consumption-led economic growth -- and the distinctive investment opportunities defining Mirae Asset's "Great Consumer®" investment strategy. Click here to download the white paper, which includes supporting statistical graphs and charts.
Since 2009, Mirae Asset has carefully examined the emerging market consumption phenomenon. As a result, it has developed a highly selective, bottom-up approach in its research and stock selection, based on the unique investment opportunities that emerging markets consumption presents. In October 2012, Mirae Asset registered "Great Consumer®" as a trademark to be used in designated U.S. investment products. Some highlights of the fundamental factors supporting the rise of middle-class consumption and investment strategy from the white paper appear below.
The Emerging Markets Middle-Class Consumer – Similar To U.S. Baby Boomer, but Many Times Larger
In the U.S., the significant increase in births during the "Baby Boom" period had a profound and lasting impact on both the economy and domestic consumption. Consumers in the U.S. and other major developed economies have been a key source of global demand and an important driver of global growth over the last 50 years. However, headwinds these economies are currently facing are putting into question whether they can continue to lead global growth as they have historically.
In stark contrast to the challenges facing developed markets, emerging markets are exhibiting a range of expansive transformations that Mirae Asset believes will become the main driver of global growth in the coming decades. Consumer spending will lead the way. Two key supporting statistics cited in the paper include:
- Mirae Asset's research revealed that the number of middle-class consumers in the emerging markets will reach 1.98 billion by 2020, which is more than 12 times the size of the 77 million Baby Boomers in the U.S.
- Annual consumption in emerging markets is estimated to rise to $30 trillion by 2025 (up from $12 trillion in 2010). During that same period, the emerging markets' share of world consumption will increase to 47% (from 32%) , according to the McKinsey Global Institute.
As investors, we need to know who the winners from this exponential growth in consumption will be and what the key factors are when trying to understand an investment landscape that is fundamentally different from what we have previously seen.
Four Fundamental Factors Supporting Emerging Markets Middle-Class Consumption
Mirae Asset sees four fundamental factors supporting the expansion in emerging markets middle-class consumption and enabling this population to become a dominant force in the global economy:
- Urbanization – Through the process of urbanization, cities increase their level of economic activity, which in turn results in greater consumption. The world's urban population in emerging economies is expected to rise to 64.1% by 2050 (from 46% in 2010). This compares with populations living in developed market cities projected by the United Nations to reach 85.9% by 2050 (but from an already fairly saturated 77.5% in 2010).
- Income Growth – Over the last 10 years, incomes in emerging markets have steadily risen at an average annual rate of 7.3% , doubling to $6,600 of GDP per capita in 2011 (from $3,200 in 2001) and expected to rise to $9,000 by 2017, according to the International Monetary Fund (IMF). By comparison, it took 20 years for per capita income to double in the G7 advanced economies.
- Favorable Demographics – Emerging markets work forces are not only larger and younger (under the age of 25) than their developed markets counterparts, they are also more educated than their parents. With more of the young population entering into the peak of their earnings cycle over the coming decades, backed by the two key factors of youth and education, we expect to see a corresponding rise in consumer spending.
- Consumption-Led Economic Growth – Since the financial crisis and European debt crisis, consumer demand from developed economies has substantially weakened. This and other factors have led emerging economies to shift away from an export and investment-led growth model to one focused on domestic spending, with local consumers playing a greater role in their respective country's growth. Although the weight of private consumption contribution to GDPs of emerging countries is still quite low in relative terms (for example, China at 34% vs US, UK, Germany and Japan at 71%, 64%, 57% and 59% respectively ), Mirae Asset believes that policy makers will continue on a multi-decade process to adjust their growth models toward more domestic consumption-centric economies.
Mirae Asset's Great Consumer® Investment Strategy
Mirae Asset defines the "Great Consumer®" as its unique investment strategy designed specifically to take advantage of the long-term consumption growth trends in and beyond the traditional consumer sectors in emerging markets. Important investment considerations for Mirae Asset outlined in the white paper include:
- There will be direct and indirect winners in capturing the rise of emerging market consumers. These will include local as well as multinational brands. Mirae Asset's strategy seeks to identify both types of winners within the emerging market consumption growth story.
- Mirae Asset searches for opportunities in and beyond the traditional consumer sectors, since the companies expected to benefit from rising consumption growth will not be limited to companies in the consumer staples and consumer discretionary sectors.
- Mirae Asset believes that fully understanding emerging market consumers, and what drives their tastes and requirements, are necessary in order to select the companies that have the ability to contend with these complexities as they seek to enter or grow in a market.
Emerging Markets Risk: Emerging Market investing may be subject to additional economic, political, liquidity, and currency risks not associated with more developed countries. All investing involves risk, including the potential loss of principal.
This press release is neither a solicitation to buy nor an offer to sell securities. An offering can only be made by prospectus, which can be obtained from Mirae Asset USA.
An investor should consider the Fund's investment objectives, risks, charges and expenses carefully before investing. This and other important information about the investment company can be found in the Fund's prospectus. To obtain a prospectus, please contact your financial advisor or call (888) 335-3412. Please read the prospectus carefully before investing.
Mirae Asset Global Investments is the investment adviser for the Mirae Asset Discovery Funds.
The Mirae Asset Discovery Funds are distributed by Funds Distributor, LLC.
About Mirae Asset Global Investments
Mirae Asset Global Investments is one of the world's largest investment managers in emerging market equities (Investments & Pensions Europe, January 2014). With over 550 employees, including 123 dedicated investment professionals, Mirae Asset offers a breadth of emerging markets expertise. Mirae Asset's offices are located in Australia, Brazil, Canada, China, Colombia, Hong Kong, India, Korea, Taiwan, the U.K., the United States and Vietnam. The firm manages over $56 billion in assets globally through a diversified platform to offer market-leading franchises in traditional equity and fixed income products, ETFs and alternative strategies, such as real estate, private equity and hedge funds. Mirae Asset Global Investments (USA) LLC is focused on providing equity and fixed income investment advisory services to mutual funds, foreign investment trusts and institutions. (www.miraeasset.com)
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