Since the beginning of the year, stock investors have been touted as leaving emerging countries. It’s a shame. There are still many attractive investment opportunities in emerging markets. However, it is necessary to have a slightly different perspective from traditional emerging market investment.
The macroeconomic environment is far more severe than in the last decade, when China’s manufacturing industry is so powerful that other emerging economies have also benefited from its prosperity. Investors can no longer treat emerging markets as a whole, and they can no longer be optimistic about economic trends.
But it’s not appropriate to reject emerging market equities head-on. Emerging markets still have many of the fastest growing countries in the world, and are also home to the most dynamic companies. New and exciting opportunities are born every day. For long-term success, it’s important to identify businesses that are growing strongly, even in a downturn, and to catch new trends before many people notice them.
Therefore, I would like to start here by removing the misconception that obscures investment opportunities in current emerging markets. Let me give you five points.
Policy forecasting is a prerequisite for success in the Chinese market → wrong
China’s economy is believed to be stalling due to stagnant indicators of “old China,” such as electricity consumption and cement and steel production But to conservatively, China’s gross domestic product (GDP) is expected to grow every few years at the same scale as the new economies of South Korea, Canada, or Spain. This shows that China cannot be without huge investment opportunities.
Many of these investment opportunities are in the “new China” industry, which serves the rising middle-income consumers . Mobile phones, online shopping, online games, etc. are experiencing strong growth. Spending on movies, traveling abroad, sportswear, cosmetics, etc. is increasing, and sales of chewing gum and candy are also increasing rapidly. Starbucks cafes are popular on the streets of major cities. These businesses are often just the beginning of a potential growth period.
All slowing down long-term commodities cycles → not necessarily
The long-term cycle of commodities has a cycle of 20-40 years. The most recent peak was in 2010. As commodity prices normalize, countries and industries that are highly dependent on resources are likely to continue to struggle. However, resource-consuming countries are enjoying the benefits. For example, India.
More essential, people investing in emerging markets need to have a broader perspective. The slowdown in China’s economy behind the declining demand for commodities is partly due to the country’s loss of dominance as a source of low-cost labor, but in countries such as Mexico, Vietnam, Poland, Hungary and the Czech Republic. Manufacturing will be the beneficiaries of such trends and will benefit from the recovery in consumer demand in developed countries. The trend in Argentina is also noteworthy. The country’s sovereign debt spreads have already narrowed and the export sector has regained competitiveness as a new reform-positive administration has taken office and is trying to repair the damage suffered by the country’s policies under the old administration.
The aging population of emerging Asian countries is also creating new growth businesses. For example, in South Korea, convenience store operators are expanding their market share by developing small stores that are easy for elderly consumers to shop.
Emerging market consumers are the only source of growth → That’s not the case
Consumers in emerging markets are an important source of growth and offer significant investment opportunities. But that’s not all.
Many emerging market companies are steadily digging into developed market consumers. Mexican tortilla makers, Gurma, are overwhelmingly competitive in the US market against the backdrop of strong market power, where they make most of their profits. Some airports in Mexico have been transformed into “shopping centers with runways” to attract foreign travelers who spend a lot of money and increase their profits. Manufacturers of textiles, clothing, sneakers, etc. in emerging Asian countries are driving profits because sportswear called “athleisure” that can be used for everyday wear is booming in Europe and the United States.
The appreciation of the US dollar has a negative impact on emerging market companies → Not necessarily
Investors are often worried about the recurrence of the currency crisis as emerging market currencies depreciate against the US dollar. However, the rise in the US dollar has been a tailwind for emerging market companies that sell locally produced products primarily around the world. Examples of such companies include Brazilian aircraft manufacturer Embraer, pulp and paper manufacturer Suzano Papel et Cellulose (Brazil) and Sappi (South Africa).
Emerging market investment is investing in companies based in emerging markets
Developed market parent companies with subsidiaries in emerging markets may offer more attractive opportunities to invest in emerging market businesses than emerging market companies. For example, to bet on the growth of the automobile market in emerging countries, Suzuki itself may be cheaper in terms of valuation than investing in Maruti Suzuki, an Indian subsidiary that drives Suzuki’s profits.
It may also be preferable to invest in the parent company, Anheiser Bush InBev (ABI), rather than investing in Ambev. In addition to holding a stake in Ambev, ABI has an overwhelming position in Mexico, and profits in China are expanding rapidly, making it one of the leading brands in the global premium beer market. Owns.
Emerging market equities are inefficient and tend to overreact compared to developed equities. On the other hand, as many potentially attractive trends are emerging, we believe it is best to adopt a targeted and differentiated stock selection approach to take advantage of them. Given the potential for continued turmoil in emerging markets, radar has a long-term view to successful investment in emerging markets, is lithe, and is sensitive to downside risks. It is necessary to prepare for. It will also be important to broaden our horizons from the traditional concept of investment in emerging markets.