The Global Consumer
by A. Scott White, CFP®, ChFC®, CLU®
President, Scott White Advisors
On the heels of back-to-back stock market crashes in the 2000s, we’ve seen a Euro crisis, the U.S. fiscal cliff, the sequestration and a looming debt ceiling. Populations everywhere have been affected by the global Covid-19 pandemic. We’ve witnessed governments failing to address the fundamental problems, and instead favor short-term “kick the can down the road” fixes. This coupled with the fear for the first time in generations that children will not earn as much income as their parents did during their lifetime has created a doom and gloom outlook by many investors.
But investors who fixate on these issues miss the big picture. While we’re thinking the earth revolves around us, here in the United States we could be missing the greatest investment opportunity of a lifetime. That opportunity is the overseas growth of domestic companies—and the rise of the global consumer. The consumer age born after World War II in the U.S. began on the back of 85 million baby boomers. Loathe to save money, this group spent like never before to “keep up with the Joneses.” The downside of that behavior is that within this group, many individuals lack the savings needed to sustain a 20-plus year retirement. But the upside is that all this spending created enormous profits for many domestic companies: The stock market rose nearly ten-fold*.
Researchers at the McKinsey Global Institute estimate that in 2025 there will be about 4.2 billion people with disposable income—almost double the number in 2010 that demographers call the “consuming class.” China and India are growing the most, but countries in Latin America and Africa also have a growing consumer class. According to The Rise of the Global Consumer, in 2010 the emerging markets accounted for $12 trillion in spending. In 2025, they are expected to account for about $30 trillion of spending, or nearly half of global spending.
My wife was born in Colombia and her family resides there. During our visits, most places I traveled in Colombia had WiFi. The internet is changing the lives of people in Colombia and other countries in ways we cannot imagine. For many developing nations the lack of information has played a key role in its citizens’ repression and inability to advance in life. Easy access to the internet has eliminated this obstacle. In the past the lack of a copper wire network of phone lines crisscrossing the country made it very difficult to communicate with people in another village. Today my daughter communicates over her phone with a video linkup for free. In the old days, a villager who urgently needed to repair a piece of equipment would have to find someone to pay a ransom price to get the needed repair. Today the villager goes on line to YouTube for step-by-step video instructions on how to make the necessary fix. Young people there who have never traveled to the United States speak English and work for U.S. companies via computer links.
In Colombia and other countries, peasants are gradually becoming consumers. Children are earning more than their parents. Though meager by our standards, their earnings are enough to enable them to enjoy soda, aspirin and cigarettes. Can you imagine a billion new consumers on this planet for these companies’ products—and the impact it will have on corporate profits? If fewer than 100 million baby boomers fueled the consumption that drove the U.S. stock markets up ten-fold since World War II, can you imagine the effect one billion consumers will have on the world’s stock markets?
Ultimately, profits—not the economy—drive stock prices higher. It’s investor behavior—not reality— that often determines investment returns. Don’t let the negative headlines prevent you from missing the investment opportunity of a lifetime.