Learn more about market trends Angry societies: Emerging markets consumer story remains intact

Angry societies: Emerging markets consumer story remains intact

September 2018

Emerging markets consumer story remains intact

EM equities are currently under pressure as a result of various negative factors such as a stronger USD, political developments and negative sentiment driven by the turmoil in Turkey and Argentina. Furthermore, the trade dispute has also been weighing on EM sentiment even though EMs are not overly exposed to global trade except for export-oriented countries like South Korea and Argentina. Finally, revenue growth for consumer stocks has declined recently but remains at healthy levels, particularly with regard to discretionary spending. EM consumer stocks were unable to escape these headwinds and saw their share prices suffer.

Fundamentals remain strong

However, the long-term fundamentals for strong EM consumer growth have not changed: a young and growing population, a growing middle class and urbanization should remain strong consumption drivers. Together with the increasing penetration of smartphones, this provides a strong backdrop for online shopping.

MSCI EM Consumer Discretionary underperforms EM and global equities over one year

Performance chart

Last data point 05/09/2018. Source: Bloomberg, Credit Suisse

Online shopping provides strong growth potential

Online shopping is already very common in China. According to the Credit Suisse Emerging Consumer Survey, more than 20% of retail spending is done online. And according to PwC, a consultancy, online retail sales growth rates in mainland China should stay at around 21% per annum between 2017 and 2021. Ecommerce growth in other EMs is expected to follow suit, with the outlook for Latin America especially attractive. For example, we forecast five-year sales growth of 30% per annum for MercadoLibre, the largest online commerce and payment ecosystem in Latin America, which compares with 21% growth for Amazon (based on consensus estimates). Overall, the online channel provides an additional opportunity for companies to increase sales beside the traditional channels, especially in categories such as luxury goods and fast moving consumer goods or groceries, where penetration is currently low. For example, Want Want China, a Chinese food company, doubled e-commerce sales in each of the last two years. Moreover, e-commerce has accounted for one-third of revenue growth in dairy and beverage, providing further evidence of the undisputed potential this channel offers.

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