Emerging-market consumers show growing optimism

Aggie Wong | 05/07/2018
woman making a purchase

Summary

We recently surveyed consumers in China, Brazil, Mexico and Germany to get their views on planned spending, financial priorities and more. From big-ticket items to smaller purchases, emerging-market consumers seem willing to spend – and they want to travel more frequently.

Key takeaways

  • With household consumption representing around 60% of global GDP, consumer sentiment is a factor investors should incorporate into their decision making
  • More than 70% of emerging-market consumers plan to buy property and vehicles in the next five years
  • More than 8 out of 10 consumers in emerging-market countries said name brands are important when purchasing a consumer product, food or cosmetics
  • Chinese consumers we polled said positive economic growth is the reason they expect to travel more in the next 12 months

Consumers have long been the engine that powers the global economy. As global growth returned to solid levels in the years since the financial crisis, household consumption rose to around 60% of global GDP, according to the World Bank, making consumer sentiment a factor investors can’t afford to ignore.

A new study from Grassroots® Research – Allianz Global Investors’ proprietary in-house research division – reached 1,000 consumers in China, Brazil, Mexico and Germany to get their views on planned spending, financial priorities, travel and more.

Emerging-market consumers plan big purchases

The study revealed that more than 8 out of 10 respondents in emerging-market nations – China, Brazil and Mexico – plan to purchase a vehicle in the next five years. Meanwhile, almost three-quarters plan to buy furniture or appliances in the next 12 months, and more than 71% plan to purchase property in the next five years.

The picture was different in Germany, highlighting the cultural and socioeconomic differences between Germany and the emerging-market countries we surveyed. Just under one-third of German respondents hoped to buy property in the same five-year time frame, while around the same number said they considered property ownership unimportant. This is in line with statistics showing that Germany has one of the lowest homeownership rates among developed nations, according to the OECD. Consumers in Germany also showed a lower intention to buy a vehicle, furniture or appliances compared with their counterparts in emerging-market countries.

Aspirations for trading up are strong in emerging markets

Emerging-market consumers also showed clearly positive sentiment around smaller-ticket items, according to our survey, and people in Brazil, China and Mexico were much more drawn to name-brand products than were value-conscious German consumers.

For example, in Germany, price was by far the most important factor cited when considering purchasing a consumer product, food or cosmetics, and a mere 46% were concerned with name brands. Meanwhile, 83% or more of emerging-market respondents rated name-brand items somewhat to extremely important when making such purchases.

Value is paramount for consumers in Germany
Question: Which attribute/factor do you consider most when making a purchasing decision about a consumer product/food/cosmetics, assuming product quality is acceptable?

Source: Grassroots® Research. Data as at May 2018.


When asked to identify their top financial priorities, life experiences – dining/entertainment, travel and social activities – dominated in all four countries. However, Chinese consumers showed a very low preference (3%) for paying down debt and a very high preference (50%) for putting money to work on life experiences. Spending on life experiences also ranked highest among Brazilian consumers, even though respondents there were also focused on paying down debt.

Brazil and Mexico, despite their high levels of aspirational spending, also stood out for wanting to be able to spend a little more on everyday items, suggesting some potentially pent-up demand for consumer staples.

Half of respondents in China value life experiences the most
Question: What is your current top financial priority?

Source: Grassroots® Research. Data as at May 2018.


Travel outlook is positive but influenced by cultural factors

Travel intentions also seemed to reflect the ambitions and optimism of the emerging-market consumer, with 81% of respondents in China citing a positive economic outlook as the reason they expect to travel more in the next 12 months.

Alec Patterson, Sector Head of the US Consumer Research team at Allianz Global Investors, found it notable that a lower number of Germans (40%) than emerging-market respondents (57%) travel multiple times per year. “This was somewhat surprising, as was the fact that a majority of Germans seem to want to maintain the status quo. Meanwhile, consumers in Brazil, China and Mexico showed a high desire to travel more frequently.”

Still, conclusions about consumer sentiment cannot be based on travel results alone, since travel is often influence by tradition and culture. Research Analyst Bianca Schnieder, who specializes in European consumers, noted that Germans still generally scored high in terms of their overall desire to travel. “This needs to be seen in the context that Germans – in particular, German families – often take a long summer holiday of two or more weeks,” said Schnieder. “Chinese consumers tend to prefer shorter-duration holidays, and they can increasingly afford to travel multiple times per year.”

 

 

 

 

 

 

Grassroots® Research is a division of Allianz Global Investors that commissions investigative market research for asset-management professionals. Research data used to generate Grassroots® Research reports are received from independent, third-party contractors who supply research that, subject to applicable laws and regulations, may be paid for by commissions generated by trades executed on behalf of clients. 

Some or all the securities identified and described may represent securities purchased in client accounts. The reader should not assume that an investment in the securities identified was or will be profitable. The securities or companies identified do not represent all of the securities purchased, sold, or recommended for advisory clients. Actual holdings will vary for each client. Reference to Equifax is provided for illustrative purposes only and is mentioned because they are widely known for their recent data breach in 2017.

Investing involves risk. The value of an investment and the income from it will fluctuate and investors may not get back the principal invested. Past performance is not indicative of future performance. This is a marketing communication. It is for informational purposes only. This document does not constitute investment advice or a recommendation to buy, sell or hold any security and shall not be deemed an offer to sell or a solicitation of an offer to buy any security. The views and opinions expressed herein, which are subject to change without notice, are those of the issuer or its affiliated companies at the time of publication. Certain data used are derived from various sources believed to be reliable, but the accuracy or completeness of the data is not guaranteed and no liability is assumed for any direct or consequential losses arising from their use. The duplication, publication, extraction or transmission of the contents, irrespective of the form, is not permitted. This material has not been reviewed by any regulatory authorities. In mainland China, it is used only as supporting material to the offshore investment products offered by commercial banks under the Qualified Domestic Institutional Investors scheme pursuant to applicable rules and regulations. This document is being distributed by the following Allianz Global Investors companies: Allianz Global Investors U.S. LLC, an investment adviser registered with the U.S. Securities and Exchange Commission; Allianz Global Investors GmbH, an investment company in Germany, authorized by the German Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin); Allianz Global Investors Asia Pacific Ltd., licensed by the Hong Kong Securities and Futures Commission; Allianz Global Investors Singapore Ltd., regulated by the Monetary Authority of Singapore [Company Registration No. 199907169Z]; Allianz Global Investors Japan Co., Ltd., registered in Japan as a Financial Instruments Business Operator [Registered No. The Director of Kanto Local Finance Bureau (Financial Instruments Business Operator), No. 424, Member of Japan Investment Advisers Association and Investment Trust Association, Japan];and Allianz Global Investors Taiwan Ltd., licensed by Financial Supervisory Commission in Taiwan. 


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Expert-Image

Aggie Wong

Assistant Vice President, Research Analyst
San Francisco, California
Ms. Wong is a research analyst and an assistant vice president with Allianz Global Investors, which she joined in 2015. She is a member of the Grassroots® Research team, a division that commissions proprietary and customized investigative research, where she manages market research projects for asset-management professionals. She was previously a research associate at Dow Jones. Before that, Ms. Wong was an undergraduate instructor and lecturer at San Francisco State University; she also held a variety of research roles at UCSF Medical Center, UCLA and San Francisco State University. Ms. Wong has a B.A. in psychology and sociology from UCLA, and is a master’s degree candidate in developmental psychology at San Francisco State University.

From TPP to USA: 7 stages of economic integration

Hans-Peter Rathjens | 06/07/2018
From TPP to USA: 7 stages of economic integration

Summary

Trade is a growing concern for financial markets, with Brexit and a new US-induced trade war triggering a debate about how closely nations must be integrated to trade well together. Yet the reality is nuanced, so it helps to understand the seven types of economic integration and how they benefit the nations involved.

Key takeaways

  • International trade has become a key component of global GDP in the last 30 years, thanks in large part to falling tariffs – yet fears of a trade war are growing
  • To boost their economies, countries can enter into trade agreements that place them into one of seven categories of economic integration
  • TPP and NAFTA are two examples of trade pacts that lower or eliminate tariffs, but they are low on the economic-integration spectrum
  • The euro zone and the United States both offer the free movement of goods, capital, services and labour – but only the US can boast complete economic integration
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