There is a tidal wave of middle-class people slated to open up a world of opportunity that investors haven’t seen in 40 years, say industry veterans.
“The reason we are so bullish on these emerging markets is because of the emergence of the middle class,” says Christine Tan, senior portfolio manager and CCO of Excel Funds. “If we think about the economic power that was unleashed in Canada during the ‘70s and ‘80s as the boomers went through their wealth collection and creation phase, and the impact we saw on homebuilding and car sales – you can see the pig in the python.”
Multiply that by a few hundred million times, she continues, “and that is what you have in the emerging markets today.”
According to the Office of Economic Cooperation and Development (OECD), the global middle-class population is expected to increase from 1.8 billion to nearly 5 billion by 2030, reflecting cumulative growth of nearly 175%.
Of the nearly 3 billion increase, almost 2.7 billion (roughly 90%) is likely to come from the Asian countries.
In fact, the Asian share of the global middle class is expected to rise significantly, from just 28 per cent in 2009 to 66% in 2030, roughly in line with Asia’s share of the total global population (66%).
These economies have been expanding at significantly higher rates than developed markets. While still considerably lower than those found in developed markets, income levels in emerging markets are growing twice as fast, and future growth is expected to be driven by a vast and untapped consumer market.
While this growth of the middle class has contributed to such events as the Arab Spring in 2010 – what Tan describes as “noisy transitions” – she welcomes change as an investor.
“I always welcome anything that provides increased transparency and accountability,” she told WP. “Increased accountability of the government to the electoral process is what will make these countries an increasingly better place to invest.”