Young, Urban, and Spending: The Rise of Emerging Markets
Emerging markets may be entering a rare sweet spot where long-term structural growth trends are reinforced by near-term macro tailwinds.
At Lanteri Partners, we’ve traditionally maintained limited direct exposure to emerging markets due to their historically higher risk profile. Factors such as political instability, regulatory uncertainty, currency volatility, and weaker corporate governance have, at times, led us to favour more predictable opportunities in developed markets. However, we believe the landscape is evolving.
We’re witnessing the rise of a powerful and aspirational middle class across much of the developing world. This cohort is younger, more urbanised, digitally connected, and increasingly brand aware. For investors with a longer-term horizon and appropriate risk appetite, it could represent a strategic shift worth serious consideration.
The Case for Emerging Markets
After years of underperformance and volatility relative to developed markets, emerging markets (EM) are once again drawing investor attention. These economies such as China, India, Brazil, Mexico, Indonesia, and South Africa are in transition toward developed status. They typically feature rapid economic growth, urbanisation, industrialisation, and rising income levels. Despite often lacking the regulatory maturity of developed nations, they represent a large share of global GDP and population and offer meaningful long-term growth potential.
A key driver of renewed interest is the changing face of the EM consumer. According to recent research by McKinsey, by 2030, nearly 75% of emerging market consumers will be aged between 15 and 34. This cohort is digitally savvy, brand-conscious, and wellness-oriented traits that align with global consumer trends.
In countries like India and Saudi Arabia, we’re seeing increased discretionary spending across sectors such as travel, entertainment, home improvement, and health. Even older and wealthier cohorts in EM are demonstrating higher spending intent than their counterparts in the US and Europe. This generational consumption wave could be a significant growth engine for companies operating in, or exporting to, these markets.
Why Now? Three Macro Tailwinds Are Aligning
Falling U.S. interest rates
A softer U.S. dollar
Fiscal stimulus across major EM economies (e.g. China)
These conditions tend to ease external pressure on EM economies, improving fundamentals, encouraging capital inflows, and supporting equity market performance. Importantly, EM equity valuations remain compelling, trading at discounts to many developed markets on a price-to-earnings basis.
Risks to Consider
Investing in emerging markets is not without risk. Political instability, regulatory uncertainty, currency volatility, and less mature financial systems can lead to sharper market swings. Geopolitical tensions, particularly involving larger nations like China, also add a layer of complexity for global investors. For this reason, EM allocations are typically best suited to investors with a longer time horizon and higher risk tolerance.
Because of these factors, EM exposure is best suited to long-term investors with a higher risk tolerance.
How Can Australians Invest?
There are several accessible ways to gain exposure to EM:
Exchange Traded Funds (ETFs): Cost-effective, diversified options include:
Vanguard Emerging Markets Shares Index ETF (ASX: VGE)
iShares MSCI Emerging Markets ETF (ASX: IEM)
Actively Managed Funds: For those seeking selective exposure with risk management, consider:
GQG Partners Emerging Markets Equity Fund which focuses on quality companies in EM regions.
Thematic or Regional Products: For targeted exposure to tech or consumer trends in Asia:
BetaShares Asia Technology Tigers ETF (ASX: ASIA)
Emerging markets remain volatile, but they are no longer a purely speculative asset class. Demographic trends, digitisation, and economic liberalisation are reshaping these economies and may present compelling opportunities for investors willing to look through the noise.
As always, EM exposure should be assessed in light of your broader investment objectives and risk appetite. If you’d like to explore how emerging markets could fit within your portfolio, feel free to reach out.
Tarik Karama
Senior Portfolio Manager
Funds Management
(03) 9650 9762
Ground Floor, 1 Collins Street Melbourne Victoria 3000 Australia
