For as long as anyone can remember, most of the world's consumers have been domiciled in the United States and it was our spending that powered retail exchange traded funds. That’s no longer the case. Emerging markets are now taking the lead in consuming goods, so that’s where those hawking their wares have turned their attention.
During the recession, emerging market consumption surpassed U.S. consumption for the first time, equaling 32% of the global share compared to 28% for the United States, reports Pallavi Gogoi for DailyFinance. [ETF Strategies for Playing the BRICs.]
Mauro Guillen, professor and director of the Lauder Institute, says that “emerging economies, like India and China, with very large populations, have not only done well economically in the last decade but their personal incomes have risen exponentially, too.” Furthermore, those countries continued to grow as the United States went through a deep recession. [India ETF: A Proving Ground for Global Markets.]
Economic indicators such as earnings and exports were much more favorable in Asian markets as compared to those in the United States, where they either remained stagnant or declined. Additionally, developing countries have a rising middle class that will be consuming even more in the future. Consequently, the flow of trade could reverse as emerging markets import more and developed countries start exporting more. [China ETF Plays: One Country, Many Options.]
U.S. retailers aren’t the only developed market companies hunting for growth opportunities in emerging markets. The time is ripe for Australian retailers to migrate overseas and expand their market share, reports Michael Baker for The Sydney Morning Herald. Retailers loath to expand are mostly wary about taking their brand names too far away from home, but they can always gain entree to emerging markets by licensing their brands to local “brand managers.” [5 ETFs for the New Retail Climate.]
This way retailers gain access to a far off location with the added benefit of handing over operational and real estate risk to the licensee. However, there is always the drawback that the licensee won’t perfectly match the brand name concept.
How can you leverage this into an ETF play? You have several options; global consumer ETFs give you exposure to international shoppers, while single-country funds give you a play on a strong consumer base in particular emerging markets. After all, if consumers are spending, it’s as sure a sign as any that an economy could be on its way to growth. If you want a broader fund with mitigated risk, look for international retail. If more oomph is what you’re after, a single-country fund will give you more targeted exposure.
- iShares S&P Global Consumer Staples (KXI)
- iShares S&P Global Consumer Discretionary (RXI)
- SPDR S&P International Consumer Discretionary Sector (IPD)
- SPDR S&P International Consumer Staples (IPS)
- iShares S&P India Nifty 50 (INDY)
- WisdomTree India Earnings Fund (EPI)
- PowerShares India Portfolio (PIN)
- PowerShares Golden Dragon Halter USX China (PGJ)
- iShares FTSE/Xinhua China 25 Index (FXI)
- SPDR S&P China (GXC)
- Global X China Consumer (CHIQ)
Max Chen contributed to this article.