|If you have spent anytime time following Emerging Markets you will likely know that the key growth story in the developing world is the emergence of the middle class consumer.
There are numerous studies published by investment banks, consulting firms and fund companies showing us how billions of people in developing countries are just now entering the middle class and increasing their discretionary consumption; seeking out more and better food, clothing, appliances, cars, educations etc. It’s a big story that is fundamentally changing economies across the globe and in rapid time. In a report titled “Going for Gold in Emerging Markets”[i] McKinsey & Co concludes:
“By 2025, annual consumption in emerging markets will reach $30 trillion—the biggest growth opportunity in the history of capitalism.”
That is a bold statement. Not a “large opportunity” or “good opportunity” but the biggest growth opportunity in the history of capitalism. And while it may sound hyperbolic, based on my personal research, analysis, travels, experience and logic I think it’s true. Besides, even if it turns out to be only the 2nd or 3rd best opportunity in the history of capitalism, it might be worth a closer look.
Middle Class Consumption of Largest 10 Countries | PPP $Trillions[ii]
The chart above illustrate the shift in middle class purchasing power from developed to emerging markets and the projected change in the source of consumption.
The Great Confluence
There are several powerful trends coming together in a great confluence with staggering results. Just as the massive population wave in emerging markets is joining the consumer class, the tools, methods and models of consumption are undergoing a once in a lifetime transformation as three other major trends take hold.
Trend 1 Smartphones Are Becoming Affordable and Ubiquitous
When did you first have a phone with a touch screen? For me the answer is 2009, just a few years ago. And yet, now, the idea of not having one, seems implausible. What would I do? Indeed, The Economist has recently labelled the smartphone “the defining technology of the age” adding a prediction that 80% of all adults “will have a supercomputer in their pocket” by 2020.
Smartphone Users Worldwide (2014-2020)[iii]
Fuelling the spread of this technology are new competitors that are driving down prices for entry level smartphones making them affordable for more people. Chinese smartphone maker Xiaomi – started less than 10 years ago is currently the fourth largest smartphone player in the world. In India, market leader MicroMax is selling smartphones for under 3,000 Rupees, or ~$40[iv]. And, it may still be the first innings of this game. Consider for example that India has 1.25 billion people and only 1/3 of the population are smart phone users, according to eMarketer.
Trend 2 Mobile and WIFI Broadband Internet Access are Surging
When was the first time you were able to reliably watch a video on your phone? The answer for me is only in the past couple of years. It seems to me that if I am just getting these things, most of the people in the developing world must not have them quite yet. Indeed, the chart below indicates that this is true, and that the spread of mobile broadband is in the early stages but surging quickly.
Smartphone Penetration (2017)[v]
Trend 3 | The Globalisation of the Capital Formation Process
Across the developing world, local entrepreneurs are partnering with U.S. venture capital investors to pour their hearts, sweat and billions of dollars from institutional investors into ecommerce start-ups. In many cases – like Alibaba – these enterprises are enjoying tremendous success and creating significant value.
India, with its massive population and low penetration rates is the current hot spot for venture investors. But it’s happening everywhere from Vietnam to Colombia to Turkey. It’s even happening in Africa, which has been an investment backwater for my entire lifetime.
The Great Confluence is Just Getting Started
By now most of you have heard of Alibaba founder Jack Ma. But have you heard of Sachin and Binny Bansal? They are the founders of FlipKart – “the Alibaba of India”. They raised over $7 billion in funding rounds since the company’s founding in 2007. Wal-Mart recently announced that they will acquire a 75% stake in the company. We first highlighted this company in 2015 and told you that you would be hearing about it. How about Sim Shagaya and Konga.com? Ever heard of them? Don’t worry, you likely will.
Kevin T. Carter, Founder and Managing Partner, Big Tree Capital and Chairman of EMQQ Index Committee. For more information, visit www.hanetf.com
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[ii] Source: Global Economy and Development, Brookings Research. Data for 2020 and 2030 is projected and not guaranteed
[iii] [iii] Source: Statista. Disclosure: Data for 2018-2020 is forecasted. There is no assurance or certainty that the outlook or forecasts will come to pass.
[v] Source, IMF, World Economic Outlook Database