China's urbanisation has accelerated since the late 1970s, transforming a nation once reliant on agriculture into the world's second-largest economy and the biggest consumer of steel, copper and coal. It's a theme playing out all over the developing world, stimulating economic development, job-creation and rising wealth. Importantly, it has much further to run. Income levels of the 6 billion people outside the West are currently effectively equivalent to those of Westerners in the early 1900s. There is evidence that once average annual incomes rise above $2,000 per head, there will be a rapid increase in consumption of the basic goods and services we all take for granted in the developed world.
This milestone is not far away.
How can investors benefit from a consumption boom?
One way is through an emerging markets fund. However, not all will be focused on the personal consumption story. There is an alternative way to gain exposure - by investing in companies benefiting from growing consumption and urbanisation trends.
One fund that seeks to do so is the JM Finn Global Opportunities Fund, managed by Anthony Eaton. Whilst it has some higher risk direct exposure to emerging markets such as India and Indonesia, the majority is invested in developed markets including the UK, US and Europe, where he believes many companies are well placed to take advantage.
The fund contains a number of global consumer brands such Unilever and Colgate-Palmolive, both of which benefit from a significant emerging market presence. These companies are in a “nirvana situation” according to Anthony Eaton, as non-Western consumers aspire to raise their living standards and buy products we take for granted in the developed world.
Beyond the BRICs
People tend to think of Brazil, Russia, India and China (the BRICs) as the main drivers of global economic growth. However, around one third of global growth is being driven by non-BRIC emerging economies.
One important area is Africa, which Anthony Eaton describes as "the most exciting investment arena on the planet". Africa exhibits excellent demographics - it has a population of 1 billion with a median age of around 20, and capital inflows to the region are rising rapidly. Indeed, its situation is similar to that of India or China 30 years ago. Approximately 25% of revenue generated by companies in the fund comes from Africa, but exposure is generally via firms listed on Western markets, rather than local exchanges.
Harness tomorrow's trends today
Whilst you can buy shares directly in companies benefiting from global economic growth, I believe the best way to gain exposure is through a fund focused on these emerging market growth themes. We believe the JM Finn Global Opportunities Fund could make an excellent choice for anyone seeking to benefit from the 'age of convergence' where developing countries are catching up with their developed counterparts. Anthony Eaton favours companies that are world-leaders in their field competing internationally. As the global economy expands, driven by the rising wealth of emerging nations, we believe the fund should be placed to benefit over the long term, although it is higher risk and investors should expect considerable volatility along the way.
The value of investments can go down in value as well as up, so you could get back less than you invest. It is therefore important that you understand the risks and commitments. This website is not personal advice based on your circumstances. So you can make informed decisions for yourself we aim to provide you with the best information, best service and best prices. If you are unsure about the suitability of an investment please contact us for advice.