Taking Stock of Foreign Investment

Article excerpt

John Pepper, chairman and chief executive of Procter & Gamble, perhaps best articulated why investors should look at an old investment standby, the U.S. consumer goods category: Pepper told shareholders that half of P&G's sales were in North America-but 95 percent of the world's population lives outside the U.S. "If we can achieve these levels of success around the world in just our existing business, we'll more than double our current sales and profits."

Indeed, as the middle class grows-and its spending power increases-in newly emerging markets, American consumerproducts companies are poised to reap unprecedented benefits if they have investments in these markets. According to the World Bank, developing economies represent 81 percent of the world's population, and only 26 percent of global domestic product sales. The potential for investors in companies with significant holdings in foreign markets, therefore, is enormous.

Among the consumer-goods companies with solid investments in emerging markets are P&G (NYSE: PG, currently trading around $83), Coca-Cola (NYSE: KO, trading around $80), Heinz (NYSE: HNZ, around $33), Quaker Oats (NYSE: OAT, around $34), Avon Products (NYSE: AVP, around $88), and Gillette (NYSE: G, around $53).

Consider China's growing middle class, for example: Economists predict by 2000, 400 million consumers will have disposable incomes equal to the average in developed countries. Real per-capita income in China has been growing at 8 percent a year, more than doubling the standard of living in less than a decade. India's middle class, too, is growing: Nearly one-tenth of the nation's 1 billion people now enjoys middle-class status. Similar middle-class growth has taken place in other developing countries in Asia, Latin America, Africa, the Middle East, and Eastern Europe. That's a lot of hamburgers. And diapers. And toothpaste. And razor blades.

P&G, for one, already is seeing those sales on a global basis. The Cincinnatibased household products company pegs unit volume growth in North America this year at 6 percent, but at 24 percent in Asia, and 15 percent in Europe, the Middle East, and Africa. …