How to invest where new middle-class consumers will splash the cash

Each week, a professional investor tells us where he’d put his money. This week: Kevin Carter, CIO and founder of the Emerging Markets Internet & Ecommerce UCITS ETF.

We believe that the rise of the middle-class consumer in emerging markets is the world’s most compelling long-term growth theme. Emerging markets account for 85% of the world’s population and nearly 90% of its under-30s; their GDP is also growing at more than twice the rate of the developed world’s (4.4% vs 1.8%). The conditions for what the consultancy McKinsey & Co. calls “the greatest growth opportunity in the history of capitalism” are now being realised.

Where consumption meets technology

At the epicentre of these macro trends in emerging markets there is what we believe to be an unprecedented growth story. As the bulk of the global middle class shifts to emerging economies, billions of people in the developing world have just begun to join the online community via low-cost smartphones.

As they raise their standards of living and purchasing power, the digitisation of their economies is accelerating, creating new tech giants on a par with or larger than their Western counterparts. Nine of the top 20 internet companies in the world are based in emerging markets; seven of them didn’t exist seven years ago.

We are living through one of the greatest leaps forward in economic growth in history. Investors are looking for ways to gain targeted exposure to this secular growth story.

MercadoLibre: South American’s e-commerce favourite

One company that could provide it is MercadoLibre (Nasdaq: MELI). Based in Argentina, it is the largest e-commerce platform in Latin America.Its fintech and mobile payments platform MercadoPago has emerged as a key growth area as these platforms take advantage of the underdeveloped banking systems and have begun to exploit the trend for the smartphone to replace the wallet. With the Latin American populations averaging well below the 50% smartphone adoption threshold, this largely untapped market has yet to be fully realised.

Pinduoduo: savings and fun in China

Pinduoduo (Nasdaq: PDD) has grown into the third-largest e-commerce platform in China in less than five years. This viral-like growth stems from the unique integration of social media into the traditional online shopping process. The company describes its approach as the “team purchase” model. People are encouraged to buy popular items in groups to secure discounts (Pinduoduo’s motto is, “Together, More Savings, More Fun”).

This method has facilitated rapid adoption in China’s smaller cities. With only around 60% of the Chinese population owning a smartphone, the largest internet population in the world still offers ample upside.

MakeMyTripL India’s top travel company

MakeMyTrip (Nasdaq: MMYT) is India’s leading online travel company. It has a dominant market share and benefits from operating in the fastest-growing major economy in the world. With a smartphone penetration rate of only around 29%, approximately 4,000 people in India get their first smartphone every hour. The upside becomes obvious when you consider that nearly one billion people have yet to join this e-commerce market.