Asia’s Emerging Middle Class Consumption is Powering Up

by Tony D'Altorio

Asia's Emerging Middle Class Consumption is Powering Up

by Tony D'Altorio, Investment U Research

Thursday, February 3, 2011

The global economy has something to look forward to in the next few years as Asia comes to rely on its own economic growth instead of the stagnant West. Its rising middle class practically ensures that.

Many still remain skeptical about such prospects, due to those countries' poverty levels. But as time goes on and Asia continues to succeed, that skepticism is fading.

Case in point: Dragonomics' Arthur Kroeber. Not long ago, he reported against the "fairy tale" of China's middle class rivaling America's.

At most, he estimated a mere 20% of the population would have significant buying power. Yet now he sees them hitting a "threshold income level" at an accelerated rate.

In other words, consumption is about to take off.

Dragonomics estimates 300 million people, or 23% of the population, now have significant discretionary spending. These citizens live in cities large enough to be accessible by big multinational companies.

Furthermore, Kroebner says the real Chinese income level is higher than official statistics indicate. Recent research from consulting firm McKinsey agrees with his assertion.

Right now, China's middle class stands at about 190 million urban households, or 29%. But McKinsey expects it to expand to 75%, or 372 million, by 2025.

A Strong Emerging Middle Class Isn't Just in China

China isn't the only Asian nation with a strong emerging middle class.

Look at India, where 1.2 billion people belong to roughly 250 million households. Currently, just 2 million households enjoy the same living standards as the U.S.

McKinsey retail specialist Ireena Vittal believes that's all about to change though. That's because of the 14-15 million households with an annual income of $7,000-$10,000.

Those households spend a lower proportion of income on food. They devote more of it on such things as housing, healthcare, education, clothing and appliances.

And their number is apparently set to explode to 40 million households, or 200 million people, within five years.

Of course, India's economy could stop growing 8.5% per year. Yet even if it drops to 7.3%, McKinsey still sees it having a middle class of 580 million people by 2025.

Meanwhile, market research firm Euromonitor has its own predictions about India.

Right now, 36% of households have annual disposable incomes of $5,000-$15,000. But Euromonitor expects that percentage to rise to about 58% in 2020, which amounts to about 100 million people.

Asian Gross Median Household Income

Asian gross median household income doesn't yet match America's $50,000 of course. But much of developing Asia may have reached a point where consumption really begins to take off.

Its emerging middle class - beyond Japan, South Korea, Taiwan, Singapore and Hong Kong's existing prosperity - will have far-reaching effects. That includes economic, commercial and environmental, as new consumers further strain the world's resources.

Already today, Chinese consumers purchase more cars and cell phones than Americans. Soon, that will apply to computers too.

Nomura reckons that by 2014, their retail sales will surpass those in the U.S. That means, in a few short years, Chinese consumers will be the ones known to shop until they drop.

Right now, it isn't quite yet ready to power the global economy. But expect it to drive a greater share of the Asian one soon enough.

Needless to say, this makes for an incredible investment opportunity. And thanks to Wall Street skepticism, it remains a fledgling opportunity waiting to be exploited.

Better still, Global X China Consumer (NYSE: CHIQ) makes exploiting it easy. The ETF holds 40 stocks in Chinese consumer sectors including retail, food, household goods, travel, healthcare and autos.

Good investing,

Tony D'Altorio

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