Emerging markets have seen many changes over the past two decades, and the opportunity set for investors has similarly evolved and expanded. Our Emerging Markets Equity team recently got together to discuss the innovations we see and the reasons we think the long-term outlook looks fertile from an economic growth and market perspective. Watch the video below for our insights.
Here are a few highlights of the trends and opportunities we see.
- We think that the inflection point is now. The past 18 months have accelerated the use of technology both on the consumer and business side—whether it’s in e-commerce, digital banking, or clean energy.
- Companies that do not have sunk capital in legacy business models are often able to utilize technology innovation to leapfrog traditional business models and deliver what consumers want.
- Today, one of the biggest themes we see in Asia is the mobility and the electrification of the transportation sector, including battery production.
- The Asia-Pacific region also boasts the world’s second-largest pharmaceutical market, China. The penetration rate for biologics drugs in China is less than 20%, less than half of what we see in developed markets like the United States.1
- In Latin America, online retail is a big opportunity we see, specifically in Brazil. The penetration of online retail in Brazil is about 10%, half of that of the United States and about a third of that of China and the United Kingdom.2
Emerging markets generally have youthful, digital-savvy populations, and in many cases their needs aren’t being met, so there is a lot of opportunity for new players to come in and innovate. In India, for example, there are about 800 million people under age 35. As investors, that creates opportunities not only in technology companies, but also in areas like financial services and aspirational products like education and luxury goods. We are excited about what the future will bring.
We think the pandemic period has catalyzed change, innovation, and brought a greater focus on technology. It’s a very interesting time to be looking at the emerging world today. We believe the breadth of opportunity, the growth, the innovation, the sustainability of the business models, and the much stronger institutional resilience compared to decades past create an attractive future for emerging markets.
What Are the Risks?
All investments involve risks, including the possible loss of principal. The value of investments can go down as well as up, and investors may not get back the full amount invested. Stock prices fluctuate, sometimes rapidly and dramatically, due to factors affecting individual companies, particular industries or sectors, or general market conditions. Investments in foreign securities involve special risks including currency fluctuations, economic instability and political developments. Investments in emerging markets, of which frontier markets are a subset, involve heightened risks related to the same factors, in addition to those associated with these markets’ smaller size, lesser liquidity and lack of established legal, political, business and social frameworks to support securities markets. Because these frameworks are typically even less developed in frontier markets, as well as various factors including the increased potential for extreme price volatility, illiquidity, trade barriers and exchange controls, the risks associated with emerging markets are magnified in frontier markets. To the extent a strategy focuses on particular countries, regions, industries, sectors or types of investment from time to time, it may be subject to greater risks of adverse developments in such areas of focus than a strategy that invests in a wider variety of countries, regions, industries, sectors or investments.
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1. Sources: Frost & Sullivan, IQVIA.
2. Sources: US Census Bureau, ONS UK, IBGE, Euromonitor, HSBC. Data as of 2020.