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It’s been a long spell of under-performance by emerging markets equities relative to domestic counterparts, but at the very least, the former is showing some signs of life to start 2023 as the MSCI Emerging Markets Index is higher by 3.5%.
When the go-go days – the early part of this century – of emerging markets equity investing return is anyone’s guess and timing that return isn’t an endeavor advisors should spend any time on. And while years of disappointment shouldn’t be ignored, the same is true of developing economies.
Indeed, the emerging markets equity investment thesis has long tantalized clients with selling points such as rising middle class incomes, increasing tech proficiency among consumers and attractive valuations. There have been periods, mostly brief, in which those catalysts worked in investors’ favor. However, the momentum was rarely sustainable for a notable length of time, vexing market participants that arrived late to the party.
Fortunately for clients lacking geographic diversification in equity portfolios, a more credible, sustainable catalyst is on the rise: Women. Let’s examine why that’s the case and why it could prove material to long-term investors.
Rise of Women Just What Developing Economies Need
A recent research report by Global X, which issues a slew of country-specific, sector and other emerging markets exchange traded funds, examines the profound, positive impact women in developing economies can have on financial markets there.
“As emerging markets grow and develop, women are attaining higher levels of education, participating in the workforce in greater numbers, and narrowing the wage gap with men. This pattern could increase exponentially, with women’s increased purchasing power likely to help domestic personal spending become a more important component of economic growth. As emerging markets’ era of export- and manufacturing-led growth starts to fade, we explore how women can be a catalyst to drive modern, sustainable growth,” notes the fund issuer.
Those are important points because, as noted above, clients have long been lured to emerging markets by way of the consumer thesis – one that some ETFs and other strategies are explicitly dedicated to. While that thesis has merit, women in developing economies, as is the case with their counterparts in Western countries, are major drivers of consumer decisions and spending. They’re also following other patterns of their Western contemporaries, which are noteworthy to investors.
“In addition, due to structural, secular, and even religious shifts, women are marrying later in life, if at all. The result of this is that more women are working longer, have increased purchasing power, and will have greater amounts of discretionary income to spend on themselves and family members,” adds Global X. “In the US, by 2030, 45% of prime age working women (age 25-44), are expected to be single.3 As we have seen across other trends, including technology, education and healthcare, EM countries should follow the US closely with a faster and more significant uplift.”
Women Can Sustain, Propel EM Consumer Thesis
There are more reasons why women will be important contributors to the broader emerging markets investment thesis in the years ahead. First, in some developing economies, less than half of women have their own bank accounts, but that percentage is dwindling.
In other emerging economies, women represent the majority – in some cases, by wide margins – of current college students. That implies that in those nations, women will eventually account for a majority of the workforce.
Drilling down on other points of relevance to market participants, women in emerging markets are more likely to comparison shop and engage in e-commerce, indicating there’s compelling avenues for growth with the right strategies.
“For example, female shoppers tend to compare prices more than their male counterparts. Female consumers value health benefits more and are more willing to pay a premium for such quality,” concludes Global X. “In addition, women are more willing to shop online and take advantage of mobile shopping experiences. Women are less influenced by television marketing, but often more drawn to recommendations from friends and social media.”