Background. The purchasing power / middle-class story is the big story in emerging markets, though many funds emphasise agriculture or production. The pattern of Gaussian or normal distribution in purchasing power levels means that at low but improving levels of national incomes, huge advances in emerging market propensity to consume are possible (i.e. at $5000 income per pop, everyone buys a video, at $10,000 per pop, everyone buys a car etc.) This story in stock market termsis barely 15 years old. It is much easier to predict consumer champions than producer champions; who knows if India will be a more successful textile producer than Pakistan? Many markets have become "growth / developing" markets from "emerging" markets ten years ago, and therefore more efficient. But there are still areas capable of steady 25% eps growth over the next decade where the PERs are single digit and the companies unknown internationally but significant as local champions.

The opportunity. Consumer purchasing power plays in emerging markets should be able to generate annual returns of 15-20% for many years. The early '90s saw the creation of many global emerging markets funds. Comparatively poor emerging market returns in the last decade led to atomisation of managers and the formation of more specialist / regional / sectoral emer-ging market boutiques and funds. GTI knows these pioneers well. In some funds it is possible to invest in strong local champions alongside Nestle or Unilever, good stable-mates indeed.

Ways to play the theme. Specialist funds investing in developing countries where the middle-class effect is robust but in its infancy.

Particular factor skills required of selected managers. First world research metrics and corporate governance ideas combined with third world local knowledge and contacts.