There are more women in the labor force than ever before. Globally, their incomes are predicted to reach $18 trillion by 2018.1 This is not just a developed world story. From Asia to Latin America, as growing numbers of women attain affluence they are becoming an increasingly powerful economic force in the developing world. Women are responsible for 70%-80% of consumer spending globally and we believe this holds true in major EM countries. They buy for themselves and their children and can influence the purchases of their partners and parents, creating the vast potential to drive long-term revenue and profits at companies that provide the goods and services they want.
Oppenheimer Emerging Markets Innovators Fund seeks to tap into this transformational growth story through two related investment themes: Aspiration and Consumption. I’ll start by exploring the aspiration theme, and discuss consumption patterns in my next blog.
As someone who spends a great deal of time in emerging markets, I’ve seen first-hand that women there are fundamentally the same as women everywhere. They want better lives for themselves and their families and are inclined to spend on aspirational products and services they believe will help them achieve that goal. For example, women gladly spend on tutoring and college-prep courses to help their children get a better education, and on physical fitness to improve health.
We believe that because educational products and services are aspirational, spending in these areas—particularly child education—will continue to grow, even if the pace of consumer spending slows. Just like in the developed world, many emerging market mothers will forego their own desires to secure a bright future for their children. Our portfolio invests in several K-12 focused education companies. Two are described below:
- New Oriental Education2 – With a market cap of $4.9 billion, Beijing-based New Oriental is the largest provider of private education services in China. The company offers K-12 tutoring across a wide variety of courses, including a strong English tutoring program. Since its founding in 1993, New Oriental has had almost 23.5 million student enrollments. As of November 30, 2015, New Oriental’s network comprised 720 learning centers, including 63 schools in 53 cities, 17,000 teachers, and almost 12 million registered online users.3 Future growth should come from increased student volumes and higher prices due to online monetization. The key is that parents -not the government-are the ultimate payers, and demand for quality education is less elastic than demand for other consumer products. Parents tend to focus even more on their children’s education when the economy weakens.
- Tal Education Group4 – Tal, also based in Beijing, has a market cap of $4.1 billion. It offers K-12 tutoring, with specialized programs in math and science. Acceptance is very selective-only top students are admitted-and that reputation for exclusivity allows Tal to charge a 30%-50% premium over competitors’ prices. Tal maintains 301 learning centers in 25 cities. As of November 30, 2015, total student enrollments had increased 53.4% year-over-year for the first nine months of Tal’s fiscal year to more than 1.5 million. Geographic expansion within China offers Tal a strong growth opportunity.
As income levels increase in emerging markets, so does the awareness of personal health. We are invested in companies that enable women to live healthier lives by providing fitness-related products and services. One of these companies is discussed below.
- Hosa International Ltd.5 – Hong Kong-based Hosa has a market cap of $563 million and is one of China’s leading manufacturers of swimwear, yoga wear and sports underwear. The Hosa-branded products are considered high-end and command a 20%-30% premium compared with competing sportswear brands. Due to poor air quality in China, consumers engage in indoor exercise and physical fitness activities to a much larger extent than in developed markets. Hosa is well-positioned to meet this need for indoor yoga, swim and workout wear, with growth likely to come from increased penetration in China’s largest markets.
In my next blog, I’ll discuss how women in Asia’s developing markets spend on health and beauty products as their self-awareness grows along with their affluence.
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1 Top 10 Things Everyone Should Know About Women Consumers – Forbes, Jan 21, 2015
2 As of 05/31/16, Oppenheimer Emerging Market Innovators Fund had 2.0% of its assets invested in New Oriental Education. Fund holdings are dollar-weighted based on assets and are subject to change.
4 As of 05/31/16, Oppenheimer Emerging Market Innovators Fund had 2.3% of its assets invested in Tal Education Group. Fund holdings are dollar-weighted based on assets and are subject to change.
5 As of 05/31/16, Oppenheimer Emerging Market Innovators Fund had 1.28% of its assets invested in Hosa International Ltd. Fund holdings are dollar-weighted based on assets and are subject to change.
Foreign investments may be volatile and involve additional expenses and special risks, including currency fluctuations, foreign taxes, regulatory and geopolitical risks. Emerging and developing market investments may be especially volatile. These risks are magnified in frontier markets. Investing significantly in a particular region, industry, sector or issuer may increase volatility and risk. Small and mid-sized company stock is typically more volatile than that of larger company stock. It may take a substantial period of time to realize a gain on an investment in a small-sized or mid-sized company, if any gain is realized at all. Investments in securities of growth companies may be volatile.
These views represent the opinions of OppenheimerFunds, Inc. and are not intended as investment advice or to predict or depict the performance of any investment. These views are as of the publication date, and are subject to change based on subsequent developments.