Hard life for ageing emerging-market consumers means they’re not a soft target for investors, says AllianceBernstein

Companies and investors targeting the rapidly ageing demographic in emerging countries as a potentially lucrative opportunity may be in danger of making expensive mistakes if they fail to understand the true dynamics of the trend, global asset manager AllianceBernstein said today.

“Populations are ageing in the top 12 emerging economies at twice the rate as their developed counterparts, and this may seem like a chance to sell goods and services normally associated with older people,” said Tassos Stassopoulos, the firm’s London-based Portfolio Manager—Emerging Consumer.

“But investors should think carefully about how they access the opportunity. In particular, they should think twice before buying shares in companies which sell to emerging markets goods or services that the developed world normally associates with an older demographic—such as expensive medicines, cruises, managed care and leisure facilities. Our research suggests that this would be the wrong strategy.”

Stassopoulos—who is pioneering a ‘grass roots’ methodology to research the emerging consumer opportunity—has identified trends which suggest that the socio-economic aspects of ageing in emerging markets differ from those traditionally linked to ageing in developed countries.

“In the developed world, we normally think of people’s incomes peaking between the ages of 45 and 49, and of employment continuing for a few more years during which people can save sufficiently for retirement. That’s not the case in the emerging world. In fact, the reality there is much harsher,” said Stassopoulos.

“Emerging economies are developing so quickly, they are achieving in decades what took generations in the developed world, so young people in emerging countries rapidly reach a point where they are better educated and more qualified than their elders, including those at the peak of their earning abilities.

“The result is that many employees in their late 40s are in fear of losing their jobs as a younger, hungrier and more skilled generation is coming through. Indeed, many older workers are either losing their jobs for this reason or are reluctant to pursue higher salaries for fear of jeopardising their jobs.”

The trend is having two effects that investors need to consider, said Stassopoulos. “One is that emerging-country workers are reaching their peak income levels at very young ages, between 35 and 39, a decade earlier than their developed counterparts. The other is that they are not achieving financial security.”

Older workers now losing their jobs typically have little or no savings. “Instead of ending their lives at a comfortable level on the social pyramid, they are dropping through the social classes,” said Stassopoulos.

“This means that, far from wanting to spend money on cruises or expensive medicines, ageing people in emerging countries want to buy cheap goods for day-to-day consumption. They are not interested in luxury or leisure; on the contrary, they are totally focused on value for money.

Stassopoulos acquires his market insights from field research in which he and his analysts visit emerging-market countries and interview consumers face-to-face about their hopes, dreams and aspirations, as well as their consumption habits.

The methodology helps to identify evolving and future consumer trends and underpins Stassopoulos’s benchmark-agnostic approach to investing. In his view, investing in emerging-market indices creates the risk of buying companies which have been successful in the past but which may not succeed in future.

“In Mexico we interviewed a man in his early 50s who had been a mid-level executive. He was 46 when he lost his job. His company replaced him with someone 15 years younger who was cheaper and hungry to succeed. The older man had been saving just 10% of his money—not enough for retirement.

“In Columbia, we met a woman who, after retiring, invested in a truck so that she and her family could continue to earn. She had no savings so, to buy the truck, she sold her home in Medellin and moved out of town. When I asked how she came to be in this situation, she said, ‘Nobody told us pensions were important.’

“These are not isolated cases. Our interviewee in Mexico said similar things had happened to most of his peer group who had acquired an average degree 25 years ago and had no language skills. They are vulnerable to younger, cheaper people—especially those with better degrees and some language skills.

“In our view, investors who see the ageing demographic in emerging markets as an opportunity should think very carefully before deciding which investment strategy best suits their needs.”