Emerging markets are in the headlines on a regular basis, but we rarely hear the whole story. In this article, which also appears in September’s edition of IPE, Ghadir Cooper explains more.
The short-term focus often exhibited in markets today can and many times does mask a number of supportive secular growth trends with the potential to generate long-term opportunities in EM equities. EMs are already very significant in size, and growing at a much faster pace than developed markets. On a purchasing power parity (PPP) basis, which considers the relative standard of living, EMs account for more than half of the world’s GDP. Going forward, we believe this growth will continue to serve as a tailwind for EM companies, as it’s fueled by three core drivers that show no signs of abating: demographics, technology, and ESG.
By 2030, the United Nations estimates that 85% of the global population will reside in emerging markets. Even more noteworthy, between 2015 and 2030, almost all of the expected growth in the global middle class is predicted to come from the Asia Pacific region.
With this expansion comes an increased rate of urbanization, as people gravitate toward cities that offer greater employment prospects. Indeed, by 2050, about two-thirds of emerging markets are expected to be urbanized, compared with just under half today. Accompanying the burgeoning middle class, we expect to see greater spending power and, subsequently, a dramatic increase in consumption. By 2030, China and India in particular are forecast to dwarf other nations in terms of purchasing power, expanding PPP consumption levels by threefold and fivefold, respectively.2 Purchasing power in the U.S., by contrast, is expected to remain flat, and drop from first to third behind the world’s two most populous nations.