One of the most prominent investment themes of this decade has been the rise of emerging markets and the emerging market consumer in particular. This idea has lost its luster of late as those markets have been hit even harder than ours, but it is one that we must continue to monitor.
I was reminded of this by a headline in today’s FT, US car sales fall below China’s for first time. For a variety of reasons, the long-term health of the US economy and stock markets is deeply tied to the rise of consumerism in emerging markets.
- The US consumer must reduce debt burdens and consumption. Without growth in consumerism elsewhere, global GDP will suffer.
- The US must begin to manufacture more within our own borders and export goods to other countries.
- As the US population ages and sells investment assets to fund retirement, emerging market consumers must purchase those assets. Without an influx of new buyers asset prices will not be supported.
So, in a way, Chinese auto sales surpassing those in the US is good news as it signals the rise of the Chinese consumer, even if this is also due in part to a dramatic decline in US auto sales.
I believe that it is entirely too soon to re-enter emerging markets as a retail investor in any significant fashion. Emerging markets remain under serious pressure, their financial structures and institutions remain weak, and protectionism is on the rise here in the US. But it is an investing theme that must be closely watched for re-entry.