Today I am looking at an eye-opening reason why I believe that, despite signs of slowdown in developing markets, shares in Unilever (LSE: ULVR) (NYSE: UL.US) are set to rise as customer activity from these regions look set to remain bubbly.
Consumer activity in emerging markets remains robust
Fears of worsening economic trends in emerging regions, including rampaging inflation and still-subdued export activity to struggling Western customers, have dented optimism over future growth rates in recent times. And Unilever’s July interims did little to assuage these worries, revealing that underlying sales growth from emerging markets advanced 10.3% in January-July, representing a deceleration from the 11.4% expansion printed in the corresponding point in 2012.
Still, these are incredibly promising growth rates and compare extremely favourably with the growth on offer in established markets — performance in these developing geographies in the first six months of 2013 helped to drive Unilever’s group underlying revenues 5% higher, offsetting weakness in developed markets where revenues declined 1.3%. These regions “remain sluggish with little sign of any recovery in North America or Europe”, the company noted.
And while it could be argued emerging markets economies as a whole are showing signs of cooling, spending power of local consumers in these areas remains strong and is looking good to keep on rising. Indeed, the consequences of a rising middle class on disposable income levels; the increasing availability of consumer credit; and rising urbanisation should keep demand for all manner of goods, from aftershave to televisions, cars to luxury handbags ticking higher well into the future.
Indeed, fund specialists ETF Trends note that domestic expenditure in developing economies is set to hit $30tn per year by 2025. The money managers illustrate the bounding confidence in future spending patterns by revealing that the EGShares Emerging Markets Consumer exchange-traded fund (ETF) continues to outperform the broader MSCI Emerging Markets Index, rising 29.3% since September 2010 versus a 2.5% fall for its non-consumer focused rival.
And for Unilever specifically, the company remains extremely active in building its presence in these key regions. Although India’s Hindustan Unilever has warned of slowing trends in recent times, this has not deterred Unilever from hiking its stake in the firm to 67% over the summer as it keeps its eye on the long game. It also has a steady conveyor belt of product introductions and relaunches across its blue-chip brands in these geographies, and a number of variations to its Cornetto, Ponds and Knorr labels have been ushered in during recent months.
> Royston does not own shares in any of the companies or funds mentioned in this article. The Motley Fool has recommended shares in Unilever.