EM Consumer Sectors Appear to Have a Bright Future

April 11, 2016 |Author: EGA Investment Strategy | Categories: Chart of the Week, Emerging Markets

Economic convergence is dead, long live economic convergence. The period spanning from 2000 through to the 2008 financial crisis was a golden era for emerging markets (EM), characterized by booming economic growth and rising standards of living. Over this time frame, the standard of living in developing and emerging economies, measured by gross domestic product (GDP) per capita at purchasing power parity, began to converge to that of the U.S. at an accelerating pace; although this process has slowed markedly after 2007 to almost a standstill in 2015. According to International Monetary Fund (IMF) forecasts for 2016 and beyond, EM can once again expect to experience a more rapid pick up in per capita GDP compared to the U.S.

Economic convergence matters for EM consumer sectors. The difference in the change in standards of living (as measured by per capita GDP) between EM and the U.S. in the past has been associated with the relative outperformance between consumer sector stocks in EM and the U.S.. Following a disappointing last few years, faster economic convergence in 2016 and beyond, as seen in the chart, could signal a brighter future ahead for EM consumer sectors.

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