Reflecting on the changing opportunities in emerging markets, featured in Disruption Week 2024.
During November we hosted a series of live webinars as part of our Disruption Week Forum, covering the theme of ‘new horizons of growth’. This covered the infrastructure renaissance in the US, how we unearth the most exciting private companies, investing in businesses benefiting from demographic shifts, and most excitedly, rethinking the opportunity in Emerging Markets.
As we wrap up 2024 and look forward to exciting times ahead, we send you the thoughts of Ben Durrant, EM Investment Manager, who discusses the changing opportunity in Emerging Markets.
As with any investment, your capital is at risk.
Emerging markets investing is radically different from 20 years ago. Then it was about finding dominant regional players, often local monopolies, that rose and fell with economic cycles.
Today it’s about discovering world-class, globally competitive companies capitalising on forces transforming society. These new stars range from Taiwanese and South Korean chipmakers to Asian ecommerce innovators and even a payments ‘super app’ from Kazakhstan.
This paper provides a summary of the discussion. To delve deeper into these insights, we encourage you to read the full transcript or watch the recording of our Disruption Week Forum here.
Macro resilience and low valuations
Emerging markets have demonstrated remarkable resilience in the face of global economic challenges. This newfound stability, coupled with attractive valuations - and the significant disparity between Emerging Markets and Developed Markets, suggests that we could see the next decade being an awful lot better for EM investors than the previous decade. Importantly, the opportunities could also be bigger than anything that has gone before.
Drivers of growth
Emerging markets are expected to contribute over half of all the high-growth companies in the world over the next three years, despite representing only 10 per cent of global indices. Several factors are fuelling this growth potential:
- The Energy Transition: A $100tn capital expenditure programme, with the majority of materials and manufacturing sourced from emerging markets.
- AI and High-Performance Computing: The likes of TSMC, SK Hynix and Samsung are at the forefront of driving the hardware upgrade cycle.
- Rising Middle Class: Companies like PolicyBazaar are expanding rapidly in the Indian insurance sector. It has tremendous network effects and a very long-term runway from here.
- Consumption evolution: Coupang, the eCommerce business in South Korea is giving its customers the best eCommerce experience in the world. You can order anything you want by midnight, and it will be at your door by 7am the next morning.
World-class companies
There’s a plethora of world-class EM companies that are often underappreciated by global investors. From TSMC, a company that is manufacturing the vast majority of the world’s leading logic chips, to SEA Ltd, Southeast Asia’s gaming, ecommerce and fintech business that has delivered a 15-fold revenue growth over the last five years.
Looking to financial services, Nubank has made tremendous strides in supporting financial inclusion. In less than a decade has become the first digital bank outside of Asia to attract more than 100 million customers thanks to its popularity in Brazil, Colombia and Mexico.
Some other companies discussed include Shenzhou International, Raizen, Luckin Coffee, and Delhivery - all strategically positioned for future growth.
An exciting yet underappreciated asset class
This combination of macroeconomic resilience and undervalued, world-class companies that are benefiting from key drivers of growth, makes a compelling case for a renewed focus on emerging markets.
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