November 7th, 2011
by Guest Author Larry D. Spears, Contributing Writer, Money Morning
It may be hard to believe that people are getting wealthier these days, but they are - just not in the United States.
No, the growth in personal wealth that we're seeing today is taking place in emerging markets half way around the globe - far removed from the employment and debt problems plaguing the West.
Brazil, Chile, China, Colombia, India, Indonesia, Malaysia and South Africa over the past decade have all posted annual gains in individual wealth of more than 10% - and some well in excess of even that figure.
That compares to growth of just 5% in that period for the United States, Japan, and Europe.
What these growth ratessignal is a trend toward steadily increasing purchasing power - as well as consumption and investment - among the people in the world's emerging nations. That means growing markets and increased profits for businesses and financial institutions.
It also means more moneymaking opportunities for savvy investors with the foresight to ride the trends along with them.
Where's the Wealth Growing?
To uncover the best ways to profit, we must first find where the wealth is growing the most - and where it will keep rising.
The McKinsey Global Institute(MGI), a consulting firm specializing in management and economic research, maintains an index of the world's leading urban centers, known as the City 600. MGI reports the 600 cities in that group - 380 of which are in developed nations, including 190 in North America - currently generate just more than half of global gross domestic product (GDP).
However, by 2025, that percentage will increase to 60% of global GDP, and 136 new cities will move into the top 600. All 136 will be located in developing nations - with 100 from China alone - displacing North American and European cities.
Another recent report from CLSA Asia-Pacific Markets, Asia's leading independent brokerage group, predicts wealth growth rates will increase even faster among high net worth individuals (HNWI), defined as those with investible assets of $1 million or more. CSLA forecasts an increase in Asian HNWI from 1.2 million today to 2.8 million by 2015 - a 140% increase - with roughly 60% of those coming from China.
So, if you truly want to target growing individual wealth, look toward Asia.
To be specific, the country with the largest rise in average personal wealth over the past decade is Indonesia.
After getting hit hard in the Asian financial crisis of 1997, Indonesia's average personal wealth jumped from about $2,300 in 2000 to $12,109 this year. Indonesia has plenty of room to grow since only 2% of its population has a net worth of more than $100,000, compared to a worldwide average of 9%. The biggest future growth will be in the country's number of high net worth individuals, expected to increase 25% by 2015.
Another Asian nation with a rapidly rising rate of personal wealth is India.
Individual wealth in India almost tripled over the past decade, rising from $2,000 at the turn of the century to more than $5,500 in mid-2011. The country's total wealth per individual is still low due to India's large population - roughly 735 million adults - but its middle class will continue to enjoy rising incomes.
And as expected, China is high on the list of countries getting richer.
China's average adult wealth has risen from $6,000 in 2000 to $21,000 this year - despite a 20% decline during the 2008-2009 financial crisis.
The Chinese yuan's slow rise relative to the U.S. dollar contributed to the increase, but it mostly resulted from actual economic expansion - a boom that lifted China to third place in terms of total household wealth worldwide, behind only the United States and Japan.
In fact, China is expected to surpass Japan to become the world's second wealthiest country by 2016, with total personal wealth rising by about $18 trillion to almost $39 trillion.
Profit from the Personal Wealth Shift
Investors can profit from these global changes with the following four individual companies, all poised to benefit from the shifting wealth patterns:
- Patni Computer Systems Ltd. (NYSE ADR:PTI), recent price $13.58- A wealthier populace demands more information and better technology, and Patni helps provide both. It supplies IT consulting and software development services to a variety of Indian companies - including those outsourced call centers we all love so much. The company also operates in North America, Europe, Japan and the rest of the Asia-Pacific region. Patni earned $1.20 a share over the past year, giving it a Price/Earnings (P/E) ratio of 11.4, with estimates for $1.35 in the coming year and a potential price target of $21 a share - a 55% premium to where it's trading now.
- PT Telekomunikasi Indonesia ADR (NYSE:TLK), recent price $34.05- State-subsidized PT Telekomunikasi, with its nine subsidiaries, is Indonesia's largest provider of phone, data-transmission and connection services and Internet access. This will be a popular industry as Indonesians have more purchasing power. The company is expected to earn $2.81 a share this year, with an increase to $2.98 in 2012. That equals a projected P/E of 11.1, with analysts offering an average one-year price target of $38.43.
- Seaspan Corp. (NYSE:SSW), recent price $12.71- A growing and increasingly wealthy population quickly looks abroad for products it can't get at home, and many of those imported goods will arrive on container ships chartered from Seaspan. The company's 58 vessels (with three more leased and seven on order) also carry a huge volume of developing world exports to the West. The global downturn hurt Seaspan's revenue the past three years, and high oil prices reduced operating margins, but the new ships will improve fleet efficiency and rising demand will increase charter rates. This year's projected profits are $1.08 a share, with $1.40 projected for 2012, giving Seaspan a forward P/E of 10.1. The average analysts' price target is $18.88, and the 76-cent dividend provides a healthy 5.3% yield.
- Pearson PLC ADR (NYSE:PSO), recent price $18.28- With increased wealth comes increased literacy, and London-based Pearson caters to that market. The company provides both printed and online reading materials (includingThe Financial Times, a share ofThe Economistand Penguin Books) to more than 60 countries worldwide. That includes China and Brazil, where demand for educational supplies has skyrocketed. Pearson has a hefty cash flow and generated earnings of $1.03 a share over the past 12 months, with $1.28 projected for fiscal 2011 and $1.36 for 2012. It has a variable dividend, but has paid 76 cents over the past year for a 4.0% yield.
For investors looking for a broader focus, here are three exchange-traded funds (ETFs) targeting regions with the greatest personal wealth growth and middle-class demand:
- Global X FTSE ASEAN 40 ETF (AMEX:ASEA), recent price $15.14- With a current market cap of $22.5 million, this fund tracksThe Financial Timesindex of 40 companies in four Southeast Asian countries. It was hit fairly hard in the August/September sell-off. However, it rebounded nicely in October and should easily regain its 52-week high of $17.51 if the economic recovery in the region continues at its present pace.
- Market Vectors Indonesia Index ETF (AMEX:IDX), recent price $29.27- This is a passive fund tracking an index of the leading stocks trading on the Indonesia stock exchange, with a current market cap of $455.3 million. The fund is well off its 52-week high of $34.99, but has been in a steady uptrend since mid-September.
- EGShares Emerging Markets Consumer ETF (AMEX:ECON), recent price $22.81- As noted earlier, increasing wealth translates into more consumption, and this EGShares fund is designed to benefit such improvements. It tracks the Dow Jones Emerging Markets Consumer Titans 30 Index, a ranking of 30 of the largest consumer-driven companies in the developing world. With $239 million in assets, ECON shares traded at $24.93 early this year, then pulled back in the market sell-off, but have rallied from a late-September low near $19.50.
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