A megatrend shaping the world

In developing countries, however, consumption is growing far more rapidly at rates of around 6-10 per cent per annum, although this is from a much lower base of only USD 8,500 per person per year. This divergence means that, by 2030, global middle-class consumption could be USD 29 trillion more than in 2015—yet only USD 1 trillion of that increase will come from more spending in developed economies (4).

A combination of rising incomes and rising populations

Emerging market economies are transforming from commodity-intensive, domestic-infrastructure and export-manufacturing economies to services-based economies. Large pools of domestic savings are now able to fuel consumption as the primary driver of economic growth. This combination of rising incomes and rising populations is likely to propel strength in consumer spending on goods and services for decades to come. By 2025, emerging market consumption is expected to reach USD 30 trillion per annum, which is nearly 50 per cent of the world total (5). This is up from USD 12 trillion in 2010.

A very large and intertwined opportunity set

When it comes to emerging market consumption, it is not uncommon for investors to default to retail or ecommerce opportunities, particularly reflecting Chinese consumption. However, there is a myriad of other emerging market consumption opportunities that are prevalent for investors. These range from education (where an estimated 100 million children have never attended school) to tourism (where less than 10 per cent of the Chinese population holds a passport). Indeed, as data becomes more globalised, tech-savvy millennials are expected to open up investment opportunities not only across traditional and online retail, but also in payment gateways, healthcare, services, education and gaming. The real difficulty lies in how one allocates a finite investment dollar to a seemingly endless stream of investment opportunities.

Importantly, it is not uncommon for investment themes to be intertwined. For example, the consumption of food within emerging markets cannot be separated from a number of different yet inter-related themes, such as scarcity of arable land, water needs, changing diets, obesity and associated health care needs.

Within these themes, there are directly investable opportunities in agricultural equipment, genetics, seeds and crop protection, livestock and produce farming, water treatment, drug development and treatment, convenient eating and home delivery. Indeed, it can be an overwhelming exercise to identify all the opportunities!

The driving force behind emerging market consumption

While baby boomers are generally the largest demographic in developed regions, millennials are the largest demographic in emerging markets. As a percentage of the total population, millennials already outnumber baby boomers in Brazil, China and India (6). And globally, of the approximate two billion millennials in the world (i.e. those born after 1980, or Generation Y), over 85 per cent live in emerging markets (6). This is important because it suggests that the younger cohort will be the driving force behind consumption in emerging markets.

Chinese and Indian millennials will, quite possibly, be the key driving force behind emerging market consumption over the next decade, with close to 900 million millennials in the two countries. With a median age of nearly 28 years, India is one of the youngest major economies globally and is expected to stay so in the foreseeable future (7).

As has been seen in other economies, the periods where the 18-35 working age cohort increases (or the dependency ratios fall) is usually associated with accelerating income and consumption rates. In Asia, Japan experienced this after World War II, followed by other ‘Tiger economies’ and, most recently, China. In India, its millennial population, which is predicted to be 500 million by 2020, is already the largest in the world and would represent over one third of India’s total population.

Significantly, according to the UN, India's millennial population is expected to keep growing at an average of 0.5 per cent per annum until 2032. China’s millennial population growth is already contracting, and it expects the US' millennial population to decline from 2027.

Millennials are expected to account for more than one third of the population