Big Spenders Around the Globe

IN A WORLD OF TIRED CLICHÉS, the gluttonous American consumer is tops. Yes, many Americans overspent, and yes, many are paying for it now. But the real shopping spree is just getting started, and it’s not happening in the richest countries. Rather, the big spending is in some of the poorest—but fastest-growing—nations. And that’s a trend long-term investors can tap, many experts say.

In China, urban consumer spending will grow to $2.3 trillion per year by 2025, McKinsey & Co. predicts, a more than fivefold increase over two decades. And in the world’s second-most populous country, India, the middle class will grow from about 5 percent of the population to more than 40 percent over the next two decades, McKinsey says. Consumers in Brazil and Russia also will open their wallets like never before. “The most important demographic shift on the planet is the emergence of the middle class in the BRIC countries,” says Uri Landesman, head of global growth for asset manager ING Investment Management Americas. Brazil, India and China have some of the most advanced economies of the developing world, although each has different factors driving growth.

Most emerging markets avoided the worst of the economic crisis, which originated in the mortgage-backed bonds that the U.S. sold to the developed world. Their economies have slowed less dramatically, and unlike the U.S. or Europe, many are projected to grow this year. So it’s no surprise that consumers in emerging-market countries want more of the amenities that we take for granted. “They all want to eat more meat, wear Nike shoes, get an education for their children,” says Francisco Alzuru, managing director of emerging-markets research for Hansberger Global Investors.

Government and private industry have taken note. The Chinese government has boosted domestic demand, partly by increasing subsidies to farmers and low-income urban residents. In Brazil, banks are gearing up to issue more mortgages, says Landesman, who recently met with banking executives there. In India, credit cards and car loans will play a bigger role as consumers begin borrowing for the first time.

That’s not to say emerging markets have been immune to the global downturn. Consumers from Beijing to Bangalore have slowed their spending amid job uncertainties. And the stocks are not as cheap as they were earlier in the year, up 47 percent since their March lows. But experts say they’re still a good value for investors with a long horizon, especially if the focus is on sectors that cater to this burgeoning demand, like banking, real estate, retail, consumer goods and entertainment. That includes U.S. stocks that do business in the developing world. Wal-Mart Stores might have saturated the U.S., for instance, but since few companies in the developing world have the same penetration in their own markets, the retailer can expand even during a downturn, Alzuru says. But experts say the bigger gains will likely be in firms based overseas—and while emerging-market stocks are generally more volatile than their U.S. or European counterparts, advisers agree they deserve a place in most portfolios. Says Landesman, “That’s where the growth is.”

Americans may be spending less, but shoppers in Asia and Latin America are just getting started. What they’re buying:

AVON
Ticker: AVP
Market Value: $14.0 billion
2008 Sales: $10.7 billion
2009 P/E: 24
The world’s biggest direct seller offers beauty products to women in more than 100 countries. Over 56 percent of the firm’s revenue comes from emerging-market countries like Brazil, India and China. In Brazil, revenue grew 24 percent in 2008; Venezuela sales grew 36 percent. Kevin Shacknofsky, manager of the Alpine Dividend funds, is “very bullish” on the company, which has also gained new representatives in the U.S. during the economic downturn. The company trades at 16 times next year’s projected earnings, well below its five-year average of
20 times.

AMERICA MOVIL
Ticker: AMX
Market Value: $76.3 billion
2008 Sales: $31.0 billion
2009 P/E: 14
The largest mobile-phone provider in Latin America, Mexico City–based America Movil is the dominant player in Mexico and one of the three largest providers in Brazil. The company has been steadily gaining subscribers, adding 3.9 million in the first quarter despite its increasingly saturated markets, and has worked to increase usage and margins by moving customers from prepaid to monthly service.

SHANDA INTERACTIVE ENTERTAINMENT
Ticker: SNDA
Market Value: $3.4 billion
2008 Sales: $522.2 million
2009 P/E: 14
China has already surpassed the U.S. in Internet users, and Shanda Interactive Entertainment offers online gaming to the plugged-in masses. The company increased profits 25 percent
in the first quarter and expanded revenue by 42 percent. Analysts project the company will increase earnings 40 percent this year.