As always, the only constant in emerging markets is change. Anthony Kettle talks to us about investment opportunities in Asia, demographic trends, and how these economies are navigating the ESG journey.
Many emerging markets (“EM”) are undergoing dynamic economic growth. In addition, EM equities are cheap right now. What are some of the key reasons for their appeal?
Demographics, growth potential, valuation, and diversification make EM an attractive proposition. In terms of demographics, these markets generally have younger populations in comparison to developed markets (“DM”), particularly in Africa though less so in Asia, but the theme holds true overall.
On balance, the growth potential in EM is also higher when compared to DM, despite Chinese growth normalising over the last few years.
From a valuation perspective, EM countries trade cheaply versus their peers in DM, in both fixed income and equities.
And finally, with EM consisting of a huge number of countries and accounting for approximately half of global GDP, there are obvious diversification benefits.
In our view, now is a particularly good time to invest in EM. The reasons for this are threefold: attempts to curb inflation in EM are a lot more entrenched than in DM, because of EM central banks taking more of a proactive stance to hike rates in comparison to peers in DM. At the same time, default rates in EM credit markets are falling, coupled with better valuations in EM versus DM credit on both a ratings and fundamentals-adjusted basis.
