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Much like the consumer goods executive who had to throw out the playbook he used in the developed world, Fisher Investments believes you must relinquish some of your preconceived notions regarding Consumer Staples stocks when investing in emerging markets.
The developing world's growing manufacturing prowess has been widely covered in studies outside this book, so Fisher Investments will not do so here. Suffice it to say, many developing countries have comparative advantages allowing them to be low-cost producers for a wide array of manufactured goods, which they export to other developed nations. The EM story is no longer just about exporting, however—it's also about consumption and imports.
As middle- and lower-class folks in developing economies get better jobs, they receive better wages and have more disposable income. They spend new disposable income not only on discretionary items like electronics, but also on products we consider essentials. This includes products like soda, beer, snacks, cleaning supplies, and so on. Because a tipping point is required in disposable income for people to afford these items, Fisher Investments finds Consumer Staples demand is more closely correlated to economic growth in emerging markets. In a recent research report, Goldman Sachs Global Investment Research identified a strong correlation between real GDP and Staples consumption in the BRICs from 1999 through 2007, citing an R* of 0.50.
For more information or to purchase Fisher Investments on Consumer Staples, click here.
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