One way to address the short-term volatility associated with emerging markets is by investing alongside secular and demographic trends. These multi-year and multi-decade influences can provide long-term resilience in the face of volatility resulting from more temporary influences, such as quarterly fluctuations in gross domestic product or election results. Trends related to infrastructure and middle-class consumption in the emerging markets are two generally better known secular forces supporting emerging-market opportunities, but there are a number of lesser known but compelling trends that provide growth opportunities.
(Emerging market special report: Advisers ambivalent about emerging markets)
Many people are aware that aging populations in developed markets (most notably in Japan and the United States) are driving increased demand for health care services and innovations. What's likely less well known is that similar demographic trends are occurring in a number of emerging markets. According to the United Nations World Population Ageing 2015 report, the 60-plus age group in a number of emerging countries — including Thailand, Indonesia, Malaysia, Korea and India — is growing at a faster rate than in Japan. The UN also forecasts that by 2050, 60-plus populations in less developed regions will dwarf those in more developed regions, with 1.671 billion in the former versus 431 million in the latter. Compared to 2015 levels, that growth represents a staggering increase of 177% in the less developed markets, versus just 41% in more developed markets.
As emerging markets become more prosperous, their populations have been able to invest more in health and wellness. Data has shown emerging-market consumers are spending more time exercising and trying to stay fit. We view this as a long-term secular trend that can support growth in athletic footwear, apparel, and accessories, as well as dietary and health supplements. However, as they have become wealthier, emerging-market consumers have suffered from a rising incidence of ailments linked to affluence, such as diabetes.
Evolving emerging-market demographics and consumer preferences provide long-term growth potential for companies all over the world. For example, both multinational and emerging-market domiciled companies are answering the growing demand for hospital procedures, pharmaceuticals, and cosmetic goods and services. Meanwhile, global sportswear and footwear companies are capitalizing on higher-end consumer appetite for recognized international brands, while local companies are benefiting as well, particularly in less affluent market segments. Emerging-market companies have also carved out niches for themselves in global supply chains — such as emerging Asia textile companies with specialized expertise in the fabric used for activewear clothing.
Our team has identified a range of opportunities, including a mega-cap European pharmaceutical company supplying emerging markets with diabetes solutions, small-cap Chinese and South Korean health care and beauty product companies, mid-cap Chinese and Taiwanese textile firms, and a mid-cap frontier market pharmaceutical company offering low-cost generic drugs to a global base of clients.
In conclusion, it is clear that aging populations in the emerging markets and the theme of health and wellness provide tailwinds to companies in a variety of industries worldwide.
Nick Niziolek is a co-CIO at Calamos Investments. He serves as head of global and international strategies and is a senior portfolio manager.