While the new wave of consumerism in China and emerging Asia is "old news," the middle class shopping story in Latin America is often ignored. Many investors in LATAM tend to focus on the vast commodities and natural resources wealth found in the region. Stocks like Brazilian oil giant Petroleo Brasileiro (NYSE:PBR) have made their ways into a variety of portfolios as a way to capitalize on these natural assets. However, the trickledown effect from all of this commodity wealth is having tremendous effects on the regions middle class spending. For investors, focusing on this consumerism is equally important to a portfolio as is the commodity side. According to a survey by AT Kearney, Brazil now ranks as the most attractive emerging market country for retailers, besting even China. The South American nations of Uruguay, Chile and Peru also made the think-tanks top 10. Overall, retail sales in Brazil rose almost 11% in 2010, more than the nation's GDP growth. Many LATAM families still have "room to groove," as household debt-to-income levels across the region are low ... especially when compared to the United States. Both Brazil and Chile feature levels of 40 and 70%, respectively. The U.S. average is around 140%.
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Exploding Middle Class Growth
As consumers in the United States continue to suffer in the face of high unemployment and a stagnating economy, citizens in Latin America are showing no signs of slowdown. Over the last five years, Colombia's middle class has grown by more than 30%. This echoes similar results for Brazil and Chile. A recent report by Banco Santander (NYSE:STD) shows that more than 51% of all citizens in Latin America have now obtained middle class status. This is up from just under 41% in 2001. More importantly, per capita income has risen to an average $11,900, an increase of $4,300 per person over the last decade.
With the region's vast commodity-wealth finally beginning to trickle down to the masses, consumer spending is exploding. These commodity-dollars are helping to spur the expansion of infrastructure, and new social policies are helping more Latin Americans save and keep assets. The continent already features some of the highest broadband and cell phone penetration rates in the emerging world. Ultimately, this domestic consumption will fuel future GDP growth.
Adding a Dose of LATAM Consumerism
For investors, the shift towards domestic consumption in Latin America could be equally as big as that shift in emerging Asia. Adding the theme to a portfolio could result in a better profit picture than that of the regions commodities firms going forward. Broad-based funds like the iShares S&P Global Consumer Discretionary ETF (ARCA:RXI) or Global X Brazil Consumer ETF (ARCA:BRAQ) could be used as proxies. However, the best approach could be a local one. Here are a few picks.
Companhia Brasileiras de Distribuicao (NYSE:CBD) operates more than 1647 hypermarkets, supermarkets, specialized and department stores, across Brazil and represents a direct play on Brazilian spending. Analysts predict that the firm's earnings per share will grow by 26.44% over the next five years. Similarly, Mexican consumer goods distributor Grupo Casa Saba (NYSE:SAB) and Latin American eBay, Mercadolibre (Nasdaq:MELI) are interesting consumer buys as well.
Homeownership in Latin America continues to rise and the newly minted middle class can now afford better living conditions. In addition, analysts estimate that Brazil is facing a shortage of nearly 7.9 million homes. Ultimately, homebuilders such Gafisa S.A. (NYSE:GFA) and Homex (NYSE:HXM) could be good bets as more Latin American citizens become homeowners.
The Bottom Line
Latin America's growing consumer story is often overshadowed by its commodity wealth. However, the rise of the middle class and increased spending could be a better long-term play. For investors, adding firms like America Movil (NYSE:AMX) or the previous stocks are a great way to tap into the new spending spree.
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At the time of writing, Aaron Levitt did not own shares in any of the companies mentioned in this article.
According to a survey by AT Kearney, Brazil now ranks as the most attractive emerging market country for retailers, besting even China. The South American nations of Uruguay, Chile and Peru also made the think-tanks top 10. Overall, retail sales in Brazil rose almost 11% in 2010, more than the nation's GDP growth. Many LATAM families still have "room to groove," as household debt-to-income levels across the region are low ... especially when compared to the United States. Both Brazil and Chile feature levels of 40 and 70%, respectively. The U.S. average is around 140%.