EM Consumer Sectors Poised for a Strong 2016

November 30, 2015 |Author: EGA Investment Strategy | Categories: Chart of the Week, Emerging Markets

EM consumer sectors poised for a strong 2016. In our recent publication Emerging Markets EPS Projected to Lead, we noted that emerging market (EM) earnings are forecast to lead other global regions, including the U.S. and Europe, Australasia, Far East (EAFE), in 2016. Part of this growth is being driven by the EM consumer.  For example, the companies in the Dow Jones Emerging Markets Consumer Titans 30 Index, the index that the EGShares Emerging Markets Consumer ETF (ECON) tracks, are projected to be up 22%, reflecting a strong 31% rebound in the cyclical discretionary sector and 12% growth in consumer staples. The sub sector drivers of growth are expected to be Travel & Leisure, Automobiles & Parts, Food & Drug Retailers, Food Producers, and General Retailers.

Fundamentals in support of consumers. EM consumer companies are poised to benefit from several macro and policy factors including:
1. Falling inflation, occuring in most EM countries, leaving more discretionary income in the pockets of the average EM consumer
2. China’s 13th five-year plan (April 2016), which will focus on an overall restructuring, shifting from a low-skilled manufacturing economy to a high-skilled manufacturing and services, consumption-based economy
3. A reduction in the minimum down payment for first time home buyers by The People’s Bank of China, the first in five years
4. Chinese authorities cutting taxes on passenger-vehicle purchases 
5. In India, key reforms proposed including a goods and service tax (GST), land and labor reforms and this week’s just announced 7th pay commission recommendations for increasing government employee salaries, should fuel sustainable economic and consumption growth
6. Telecom reforms in Mexico leading to a decline in telecom prices, which will put extra cash in the pockets of consumers

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