The picture (above and below) shows workers at a wet market in Indonesia using a Bank Rakyat Indonesia cashpoint. Bank Rakyat Indonesia provides micro-lending and is active in a country that has the world’s second largest underbanked population.
Juliana Hansveden, emerging markets sustainable equities portfolio manager at Ninety One, used the photo to illustrate the growth of financial inclusion within the emerging markets, where over 1 billion people are unbanked. She jointly took the picture with Yuxin Lin, a Ninety One analyst.
Ninety One recently collected a number of its specialists to discuss the emerging markets landscape over breakfast.
In a roundabout sort of way, Ninety One’s team – including Archie Hart, portfolio manager in emerging markets equities, and Alan Siow, co-head of emerging markets corporate debt – acknowledged that emerging markets continued to be a hard-sell. This is evidenced by the size of global investors’ asset allocations, which stand at 5% for emerging market equities among total equity allocations, and 10% for emerging market bonds. However, emerging market economies continue to grow and now account for 58% of global GDP.
If it’s many years since you last heard a fund manager make any kind of case for emerging-markets investing (perhaps not since the BRICS thesis!), then here are a few takings from the Ninety One people.
State-owned companies “much diminished”
Archie Hart said China now accounts for 26% of the emerging-markets asset class, rising from 14% in 2020. Yet it is also down from 39% in 2020, with India and Taiwan increasing.
People are nervous that so much of the developed markets is in seven stocks
Hart said state-owned companies nowadays “have a much-diminished presence in China”. Many more companies are private and a number of market developments – such as the wave of share buy-backs – had created some “very good bottom-up trends”, and showed how governance was changing among Chinese companies, many of whom were doing the “right things”.
The threat of tariffs has surfaced following the re-election of Donald Trump. However, although greater US protectionism is a negative for China, not so many Chinese exports go to the US, so the threat is not “existential”.
Alan Siow built on the Trump re-election, pointing out that following the first election of Trump the Mexican stock market saw five years of outperformance, despite protectionist threats to free trade arrangements between the US and its southern neighbour.
Siow also said Marco Rubio – who is potentially the US’s next secretary of state and, therefore, top diplomat – could benefit relations between the US and Latin America. Rubio is of Hispanic heritage.
Another interesting fact that came from Ninety One was that the technology sector now accounts for 36% of the emerging markets equity universe.
“AI does not happen without the chips being manufactured in Asia,” said Archie Hart.
Positively, EMs are currently seen as cheap and data supports the notion that EM debt could help investors de-risk their portfolios. This point is relevant, said Hart, because “people are nervous that so much of the developed markets is in seven stocks”. He speaks with reference to the so-called Magnificent Seven technology stocks and he drew a parallel to the tech concentration in 2001 that led to the dotcom crash, while also pointing out that what followed were ten “great years” for emerging markets.
“Here we are again,” he said, insisting that people are interested in emerging markets but were “yet to jump”.
Also speaking at the Ninety One emerging markets breakfast were Thys Louw, emerging market fixed income portfolio manager and Nicolas Jaquier, EM sustainable blended debt portfolio manager.
