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Tags: Global | Middle | Class | Explosion

The Global Middle Class Explosion

By    |   Monday, 05 March 2012 01:18 PM EST

The Dow Jones Industrial Average continues to teeter around 13,000, a post-financial crisis high. It appears poised to tip one way or another and speculation about which way continues to dominate the headlines.

Meanwhile, while everybody seems transfixed by the latest news, the world economy is undergoing major transformations that will change the investment landscape for the next decade and beyond.

Just as the Earth is a dynamic planet that's always changing through earthquakes and volcanoes, the world population also continues to change and evolve. In fact, a massive tectonic shift in global consumer demographics is unfolding at this very moment.

Editor's Note: Meltdown on Main Street Coming, Prepare Now

Huge amounts of people throughout the planet are becoming wealthier. Staggering numbers of global citizens are joining the ranks of "the middle class" with disposable income and becoming consumers for the first time ever.

The global middle class explosion

The growth of emerging markets, particularly China, during the last two decades has been remarkable. This is just the beginning. It's estimated that GDP growth in 80 percent of the developing world is expanding at twice the rate of the developed world. The increased wealth in these population hubs is churning out armies of new consumers by the day.

This middle class explosion will profoundly affect business and markets throughout the world.

Of course, "middle class" is a relative term with no official definition. But every definition is based on some form of discretionary income. It's defined one way in the United States and in a completely different way in China. For example, the definition of middle class in the United States is a subject of debate. Some classify it as the middle 60 percent of wage earners, roughly $30,000 to $80,000 of annual income for a household.

In China, "middle class" has far different parameters. A Chinese person with $1,300 to $2,400 per year in disposable income is considered middle class.
Estimates of the size of the global middle class vary according to different criteria. The World Bank estimates that the global middle class population was about 430 million in 2000 and will grow to 1.15 billion by 2030.

However, other estimates consider this population to be far larger.

For example, the Organization for Economic Co-operation and Development (OECD), an international economic think tank, estimates the current global middle class to 1.8 billion or 28 percent of the population. The OECD projects this population will increase to a staggering 5 billion by 2030.

A huge opportunity for blue chip companies

Regardless of which estimates are more accurate, one thing is for sure. There will be a whole lot more people (hundreds of millions or perhaps billions) running around with money to buy things for the first time ever.

What can these brand new consumers afford to buy?

Some are rich enough to buy automobiles. China is now the world's largest automobile market. But just about all of them will be able to afford basic necessities and indulgences, like toothpaste, Band-Aids and soda.

In order to take advantage of the opportunity, you don't have to buy some soap company in China or an aspirin manufacturer in Russia. You can invest in the trend with some of the highest quality companies in the world right here in the United States.

Large multinationals possess the scale and wide geographical distribution networks to stock the shelves. These companies have deeper pockets than some governments — and they know all the tricks.

For example, they know how to get the best shelf space, how to distribute efficiently, how to advertise in a new market and how to drive out competition.

These companies have become some of the world's most dominant companies by doing these things better than anyone else for years. Newly established and still-learning local establishments in emerging market countries are no match for these well-seasoned goliaths.

A recent statement made by the Coca-Cola CEO illustrates the opportunity. He said that the world is churning out new customers for the company's products the size of the population of New York City every three months.

In short, some of the biggest and best companies will become stellar performers in the years ahead. And you don't have to risk your shirt by owning them.

About the Author: Tom Hutchinson

Tom Hutchinson is a member of the Moneynews Financial Brain Trust. Click Here to read more of his articles. He is also the editor of The High Income Factor. Discover more by Clicking Here Now.

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Monday, 05 March 2012 01:18 PM
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