The case for emerging markets equities rests on their superior long-term growth prospects, which in turns depends on the rate of urbanization of the population as workers migrate from rural areas to cities, thereby increasing income levels and productivity. The McKinsey Global Institute has recently released a fascinating report on urbanization and how the rise of these cities is driving the growth of the consumer class, particularly in emerging markets (http://www.mckinsey.com/
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-Until 1500, Asia was the centre of gravity of the world economy and contributed roughly two-thirds of global growth. The urbanization and industrialization of Europe and the US led to a shift in the centre gravity to the west, which is now rapidly being reversed on an unprecedented scale (see diagram below).
-One billion people will enter the global consuming class (with incomes of more than $10 per day at PPP) by 2025, becoming significant consumers of goods and services. Around 600 million of them will live in 440 cities in emerging markets (the “Emerging 440”) and are likely to account for about half of global GDP growth between 2010 and 2025.
-The income of these new consuming classes will rise faster than the size of the class, leading to many products and services reaching take-off points at which their consumption increases rapidly.
-Urban consumers are expected to contribute $20 trillion of additional spending to the world economy by 2025, requiring a boom in construction and infrastructure investment from $10 trillion today to $20 trillion by 2025, with most of the growth coming from emerging markets.
-This huge amount consumption and investment is likely to inject more than $30 trillion of additional spending into the world economy by 2025, leading to even more demand for natural and capital resources and driving their prices higher.
-The Great Recession has hit the US and Europe particularly hard and has accelerated the global economic rebalancing. During the 2007-2010 period; the GDP of large Chinese cities has risen from 20% to 37% of GDP of large US cities, including the rise of 3 new Chinese megacities with populations of more than 10 million . In contrast, Chicago is the only city in the developed world which will reach megacity status by 2025.
-The Emerging 440 includes 20 megacities which will likely generate $5.8 trillion of GDP growth by 2025, with a compound growth rate of 7.6% which is about double the growth rate expected for the global economy during this period.
-But the 400 cities of the Emerging 440 which are middleweight cities with populations between 200,000 and ten million, that are likely to grow at even a faster rate of 8% and contribute $ 17.7 trillion in GDP growth by 2025.
-In the Emerging 440, China has 6 megacities and 232 middleweight (?) cities, Latin America has 4 megacities and 53 middleweight cities, India/South Asia has 8 megacities and 28 middleweight cities , and Africa and the Middle East have 2 megacities and 37 middleweight cities.
-Of the $20 trillion expected increase in consumption in all large cities across the world, $14 trillion will be in large emerging market cities out of which $10 trillion will take place in the Emerging 440 alone.
-By 2025, 80% of households in the Emerging 440 will be part of the global consuming class (annual incomes more than $3,500), 55% of households as part of the middle-income class (annual incomes more than $20,000) and account for 50% of the global growth of high-income households (annual income more than $70,000).
-China will alone account for 19% of the new high-income households, India 6%, Russia and Brazil 4% each and Mexico 3%, with these five countries accounting for 33 million high-income households out of a total of 60 million households in the Emerging 440.
-As the populations of many large emerging economies increase their annual incomes, discretionary spending on goods and services takes off rapidly – for example, dining out (at $3,000), transport and communication (at $6,000), washing machines (at $10,000) and retail banking and leisure travel (at $18,000).
-In addition to the demand for goods and services, cities will need to invest heavily in infrastructure with a doubling of annual physical investment from $10 trillion today to $20 trillion by 2025.
- In particular, buildings (construction equivalent to 85% of all today’s residential and commercial building stock requiring a cumulative investment of $80 trillion), port container capacity (investment of $200 billion to cater for a 2.5 times rise of global traffic) and municipal water (investment of $480 billion to increase consumption equivalent to 40% of today’s level).
-This consumption and investment is already straining the global supply of capital and natural resources. The urban world has resulted in a jump in the global investment rate from 20.8% of GDP in 2002 to 23.7% in 2008, followed by a dip during the global recession, and is projected to increase to 25% by 2025.
-Increases in the prices of energy, land, food and water in the first decade of the 2000s has already wiped out the 48% decline in prices observed during the entire 20th century.
-However, cities that under-invest in infrastructure and fail to keep pace with their expanding populations and their demands, or invest inefficiently or in the wrong things – can find themselves hitting barriers to growth.
-Lastly, urban markets are highly diverse, and many of the fastest-growing segments are likely to be in middleweight cities in emerging economies that are simply not on the radar screens of many multinational companies.
Fascinating research - and the single most important phenomena which is will positively influence investment returns over the course of the next decade (the deleveraging phenomena in the developed world being a negative influence on investment returns!) . It is the irreversible trend in urbanization in the emerging world which will eventually overpower the numerous negatives cited for developing countries - to name a few - corruption, inequality, bad policy, overinvestment and low consumption-and lead to a rebalancing in the global distribution of growth (see chart below). It is therefore critical to maintain a core weighting in emerging markets, particularly China and India (favouring domestic companies rather than multinationals as they have better access to the middleweight cities), and in natural resources which face increasing price pressure from this massive scale of consumption and investment spending. Rising inflation and interest rates will go hand-in-hand with this increasing consumption and investment spending, implying higher allocations to equities, natural resources and hard assets like land.
On Dietary fibre:
In addition to the health segment focussed on Ayurveda , I intend to periodically focus interesting articles I come across during my research on health – with a focus on nutritional medicine and holistic health, drawing from rich heritage of traditional medicine as well as aspects of modern medicine devoted to prevention of disease. Attached is an article on the importance of fibre (both soluble fibre for controlling cholesterol and blood sugar and insoluble fibre for preventing constipation) in your diet which you may find interesting. Fibre is critical for daily cleansing (a much ignored item!) and the daily requirement is 20 to 35 grams a day, while the average person gets only 12 grams a day. Whole grains are the highest source of fibre (particularly insoluble) , followed by fruits and vegetables. Some comparative data:
The fibre content of the following foods with a typical serving size:
1/2 cup vegetables: range from 2 g to 4g ( peas, potato at 4g)
One serving of fruits: range from 1g to 3 g (apples, figs, strawberries & raspberries at 3g)
1/2 cup of legumes: range from 4g to 8g (lentils at 7g, kidney beans are 8g)
1/2 cup Cereal: range from 0.5g (corn flakes) to 4g (oatmeal) and 12g (high fibre bran)
1 cup Grains: range from 1g (white rice/spaghetti) to 3 g (whole wheat pasta, brown rice)
1 slice Bread: range from 0.6 g (white bread) to 1.5 g (whole wheat bread) and 3.5 g (whole wheat roti).
Nuts: range from 0.5g to 3 g (flaxseed at 3g, rest at 0.5g)
Achieving a daily fibre target of 30 g with 3 meals and a fruit snack (5g) implies about 8g of fibre per meal which is quite difficult to achieve without consuming whole grains and legumes. And importantly, starting the day with a whole grain bran oriented breakfast can get you a long way!
Natural solutions
April 1st, 2004
By Joe Mullich
Tammi Flynn, a registered dietitian in Wenatchee, Washington, doesn’t need studies in medical journals to tell her about the showstopping benefits of fiber. When clients come to her wanting to lose weight, she advises them, as might be expected, to exercise and eat lots of fruits, vegetables, and lean proteins. However, a few years ago she also began slipping in a secret ingredient: apples. She’s found that those who follow her suggestion to eat three apples a day, one before each meal, lose 30 percent more weight, on average, than clients who followed a similar regimen, minus the apples.
How can a few apples make such a big difference? One word: fiber. A medium-size apple (about as big as a tennis ball) contains roughly three grams of the stuff, and fiber has a crafty way of tricking the body into eating less. By increasing the bulk in your stomach, it makes you feel full without adding a lot of calories.
Of course, promoting weight loss isn’t even fiber’s biggest claim to fame. Heaps of studies indicate that fiber wards off all sorts of serious diseases, including heart disease, diabetes, and diverticulitis, a common colon disorder. Just how powerful is it? A recent study in the Journal of the American Medical Association found that a cholesterol-lowering diet that included fiber-rich foods can be as effective at lowering cholesterol as drugs. Indeed, fiber’s first champion, 1870s cereal baron Dr. John Kellogg, who fed fiber-rich grains to all his patients to cure “poisons in the bowel,” would be mighty gratified to hear about its exalted status.
But he’d be puzzled by its less-than-stellar role in the popular diet plans now sweeping the country. In the Atkins, South Beach, and Glucose Revolution diets, fruits like apples—along with other good fiber sources such as beans and whole-grain breads—are downplayed in favor of fats and lean sources of protein. Why?
The answer lies in the difference between simple and complex carbohydrates—and longtime confusion between the two. Simple carbs like pastries, breads, and snack foods not only raise blood sugar levels, they often come with heaping doses of sugar, fat, and salt, and don’t contain much fiber. Complex carbohydrates, on the other hand, such as whole-grain breads, beans, fruits, and vegetables, generally don’t cause blood sugar levels to spike and do provide plenty of fiber. The diet gurus acknowledge that such carbs are healthier, but their regimens still include way fewer carbs—of both kinds—than most nutritionists recommend.
And fiber gets short shrift in the process. Some of the diets suggest fiber supplements to fill in the gap, particularly in the early stages. But the problem with this notion, say nutritionists like Leslie Bonci, a registered dietitian and author of the American Dietetic Association Guide to Better Digestion, is that supplements don’t provide the full range of nutrients found in food.
Plus, most of them contain primarily one kind of fiber: the soluble version that’s abundant in oats, lentils, beans, many vegetables, and fruits such as apples, oranges, and grapes. Soluble fiber is what’s responsible for fiber’s heart disease protection. It forms a gelatinous goo in the GI tract, which slows the absorption of glucose and fatty acids into the blood. Over time, this reduces cholesterol.
That’s important, but we need to get insoluble fiber, too. It’s found mainly in whole-grain breads and cereals and many vegetables (which tend to contain both types of fiber). Insoluble fiber is what protects your stomach and colon by stimulating the gastrointestinal tract and speeding waste products through the system.
The truth is, most of us don’t get enough of either type, partly because the best fiber sources are foods that people don’t tend to eat regularly. Plus, even some foods that trumpet their fiber content, such as whole-grain breads, often contain as few as 2 grams per slice. The average person gets about 12 grams of fiber a day—equivalent to a bowl of high-fiber cereal and two slices of whole-grain bread—but the recommended daily intake is 20 to 35 grams. And even that amount strikes some as too conservative. Some studies have shown that people with diabetes can benefit by eating up to 70 grams a day.
Physician David Katz, director of the Yale Prevention Research Center and author of The Way to Eat, says the first step in upping your fiber intake is to substitute fiber-rich foods for those you already eat. Take breakfast cereal, for instance. “Most people don’t take advantage of the chance to get more fiber by selecting a brand of cereal with a lot of whole grains,” Katz says. “These are easy to get used to and can provide 4 to 10 grams of fiber per bowl.”
A small change, perhaps—but big enough to save a person’s life. Just ask Harvard University investigators who looked at the dietary records of some 86,000 participants in the long-running Physicians’ Health Study. The researchers found that men ages 40 to 84 who ate a fiber-rich whole-grain cereal every day had a 20 percent lower risk of dying from heart disease over the next several years than those who never ate whole-grain cereals.
It’s also a good idea to get hold of a resource that lists the nutrient content of foods so you can add more fiber to your repertoire. (See the sidebar “Where’s the fiber?” on page 42.) There are probably lots more than you think. Who knew that avocados, for instance, were brimming with fiber?
It’s important, though, to build up your fiber consumption gradually. A sudden surge can cause digestive problems such as gas and constipation, says nutritionist Bonci. Since most people have no idea how much fiber they eat, you’ll need to track your diet for a day or two and count up the grams. (Most food packages list fiber amounts on the label.) Then increase that amount by 3 to 5 g per week until you reach the recommend total.
The low-carb crowd might not approve, but don’t worry: You’ll probably get plenty of thanks from your waistline, and your overall health will benefit, too.
Here is to more balance in diet – and life!
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