Numerous major U.S. multinationals are warning us to expect slower growth (read “What Multinationals Are Telling Us About the Global Economy”), which is not a surprise, given the high global unemployment. In the eurozone, the unemployment rate stood at a record 11.6% in September, according to Eurostat. In Greece and Spain, which are both in a financial crisis, the unemployment rate is a menacing 25.0%. Given the lack of jobs creation, you have to wonder about consumer spending in these areas.
But if you look at the numbers from global credit card provider MasterCard Incorporated (NYSE/MA), it seems like consumer spending is on the rise—at least via credit cards. MasterCard is a good global barometer of consumer spending as the company has a presence in over 210 countries. In a third-quarter press release, MasterCard reported that its worldwide purchase volume surged 12.0% in the third quarter on a local currency basis. MasterCard president and CEO, Ajay Banga, said, “Additionally, emerging geographies and governments continue to provide great opportunities for growth.” (Source: “MasterCard Incorporated Reports Third-Quarter 2012 Financial Results,” Yahoo! Finance from Business Wire, October 31, 2012.)
It is interesting to note the increasing use of credit in the emerging markets where cash was once king. MasterCard clearly sees new markets in these growth regions where the per capita incomes are rising and helping to drive consumer spending and economic growth.
As many of you know, I feel China and India will be the explosive areas for consumer spending, given that over a third of the world’s population lives there.
According to consulting firm Bain & Company, “China, followed by India and other emerging Asian economies, is creating a vast new population of consumers, whose growth will continue into the coming decade.” (Source: “The Great Eight: Trillion-Dollar Growth Trends to 2020,” Bain & Company, September 9, 2011, last accessed October 31, 2012.) The research suggested that about two-thirds of the world’s growth in the middle class will be derived from China and India.
On a smaller but equally important scale, the main consumer spending growth areas in Asia, also known as the “Little Tigers,” comprised of Hong Kong, Singapore, South Korea, and Taiwan, are key.
South Korea, the fourth-largest economy in Asia, grew at 6.1% in 2010, but its growth is estimated to fall to 3.5% this year, according to the Bank of Korea.
Latin America is also hot for growth in consumer spending. The region’s GDP growth is estimated to slow to 3.7% this year, down from 4.5% in 2011, according to the International Monetary Fund (IMF). On the plus side, growth is expected to rally to 4.1% in 2013. The key player in Latin America is Brazil.
Another emerging region that will see strong growth in consumer spending is Eastern Europe—namely Russia, Eastern Europe’s largest economy, and Poland, the second-largest economy in the region.
To diversify your portfolio and add possible higher returns, take a look at these emerging markets and the companies that operate there.