The Emerging Consumer: It's Time.

By Chip Hanlon | August 13, 2008 | 1:07 PM | 2 Comments

You're going to hear me talking about this a LOT in coming weeks/months, I suspect.

Raw materials have dominated the way people have invested in "BRIC" and other emerging markets in recent years. Proof? Just look at today's BRIC ETFs: the four leading BRIC indices today have an average weighting of just 4% in cosumer staples and consumer discretionaries, compared to a little more than a 17% weighting in the broad EAFE index. Meanwhile, raw materials, financials and telecoms generally tend to dominate these portfolios.

Because raw materials have performed so well this decade while consumer staples and discretionaries have underperformed, investors haven't cared to be underexposed to the consumer. They will. Soon.

Despite today's scary headlines and all the fear surrounding consumer spending, it is now time to re-consider. Especially the emerging markets consumer.  Read this short news story, for one small, but crystal-clear, example.

Consumer spending in emerging markets isn't a story of the future, it's happening today. Indeed, last year consumer spending marked the fastest-growing segment of the Chinese economy. Read that last sentence again if it surprises you.

Consumer sectors in emerging markets are under-owned, even by most institiutional money. I'm convinced that's changing as we speak. If you trade only on U.S. markets you can get some emerging consumer exposure through Perdigao (NYSE: PDA), Focus Media (NSDQ: FMCN), Tyson (NYSE: TSN) and even Nike (NYSE: NKE). If you're able to invest directly overseas, however, you can get more direct, pure exposure through individual companies.

Finally, the ETF to consider today that seems most closely tied to this idea is (NYSE: DPN), Wisdom Tree's International Consumer Staples offering. It has garnered few assets ($20MM) and its performance has been crummy, just like the group.

If as an investor your goal is to see around the corner a little bit and figure out what's coming next, it's now time to start getting exposure to this unloved sector, and perhaps to stop chasing the old, hot sectors of the recent past too agressively.

china has trouble stimulate china has trouble stimulate the consumer. chinese government spending still dominates in china. china has very large income disparity and it hurts consumer spending. Submitted by Anonymous (not verified) on Wed, 2008/08/13 - 10:45pm » reply |

The consumer? But consumer The consumer? But consumer spending is falling? It is an interesting idea but I think the gist of what you are saying is that it would be hard to actually buy today, which I agree with. Aren't some of those "old, hot sectors of the recent past" now buys since they have pulled back so much? I assume you mean commodities and the like. Submitted by Anonymous (not verified) on Wed, 2008/08/13 - 1:23pm » reply |