Skip to main content

The Globe and Mail

Emerging markets: Betting on the consumer

Most of us are aware that emerging market economies are powerful exporters, with a focus on either commodities (Brazil) or manufactured goods (China). But what about betting on the rise of emerging market consumers, as they grow more prosperous?

Kate Moore, global equity strategist at Merrill Lynch, ran a stock screen that looked for companies based in developed markets that have a high exposure to sales within emerging markets and have market caps of at least $10-billion (U.S.).

Her reasoning: "The emerging market consumer has been one of our highest conviction themes over the last several years," she said in a note. "With rising disposable incomes, high savings rates, and low credit penetration, we believe emerging markets are only at the beginning of a consumer credit cycle."

Story continues below advertisement

The demographics are certainly attractive. Ms. Moore noted that emerging markets are home to some 3.9 billion people, or 80 per cent of the world's population - though admittedly this includes places like Myanmar and Sudan, where domestic consumer spending may not be such a wise bet.

Still, consumer stocks within emerging markets are relatively small, with a total market capitalization of just $500-billion. By comparison, the total market cap for consumer stocks within Europe, Japan and the United States is more than nine times bigger, at $4.7-trillion.

Partly as a result of this low liquidity, Ms. Moore argues that emerging markets consumer stocks have become pricy, trading at high valuations based on their earnings and book values. On the other hand, developed market consumer stocks are reasonable.

Her screen found stocks with an average price-to-earnings ratio of 15.9, using estimated earnings. That's a discount to the average for the wider universe of developed market consumer discretionary stocks and consumer staples stocks.

"These reasonable valuations - combined with healthy leverage to the emerging market consumer - make the stocks in our screen more attractive investment options, in our view," she said.

Here are the 22 stocks - most of which are consumer staples - that made her screen, along with ticker symbols for stocks that trade on U.S. exchanges. From the looks of it, beer and other alcoholic beverages are a big theme here.


Story continues below advertisement

Avon Products Inc.

British American Tobacco PLC

Mead Johnson Nutrition Co.

Philip Morris International Inc.

Unilever PLC

Colgate-Palmolive Co.

Story continues below advertisement

Yum Brands Inc.

Groupe Danone SA

Carlsberg A/S

Anheuser-Busch InBev SA

Heineken NV

Pernod-Ricard SA

Coca-Cola Co.

Henkel AG & Co.

Nestle SA

Proctor & Gamble

adidas AG

Diageo PLC

Beiersdorf AG

Casino Guichard Perrachon SA

Swatch Group AG

Report an error Editorial code of conduct Licensing Options
As of December 20, 2017, we have temporarily removed commenting from our articles. We hope to have this resolved by the end of January 2018. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to If you want to write a letter to the editor, please forward to