Our Chief Market Strategist, Stephen Dover, recently held a roundtable on emerging markets (EMs) The news on EMs is they have some of the best-performing companies, year-to-date.
The news on emerging markets (EMs) is they have some of the best-performing companies, year-to-date. EMs have innovative companies capable of disrupting established industries, changing the course of a country’s economic outlook, while generating strong growth and returns. The Franklin Templeton Emerging Markets Equity Group and Martin Currie each have individual strategies aimed at capturing the opportunity in EMs. To get their different perspectives, I held a roundtable with Andrew Ness, Portfolio Manager for Franklin Templeton Emerging Markets Equity, and Alastair Reynolds, Portfolio Manager for Martin Currie Emerging Markets.
- COVID-19’s strong variants and slow vaccine distribution affect many EM economies. However, these economies continue to rebound strongly. EMs are less indebted than developed regions across sovereign, corporate, and household levels, and thus the opportunity for a meaningful recovery from a low base remains high.
- EM economies are increasingly powered by disruptive and innovative companies that are globally competitive. COVID-19 accelerated their development and growth. The growing sophistication of the EM consumer continues and is a trend that presents many opportunities for investors. Private-sector banks provide opportunities that reflect the resilience of EM economies and another avenue to participate in EM consumer growth as wider adoption of consumer credit increases.
- If global inflation continues and interest rates rise, leading EM economies appear likely to remain strong due to lower debt levels and less reliance on US dollar funding—and with higher technology exposures, present good growth opportunities. Commodities are still an important part of many EM economies and the recent rise in commodity prices supports many EM countries.
- While the managers have some differing views on countries such as India, both agree that South Korea and Taiwan offer opportunities in technology sectors given their persistent growth, world-class intellectual property (IP), and globally competitive companies. Both agree on exposure to the EM consumer and industrial materials sectors, and companies that are not debt-constrained.
- While the pandemic remains the primary determinant and influencer for economic markets throughout 2021, the underlying trends in innovation, disruption and transformation will continue to make EM relevant, resilient, and competitive.
WHAT ARE THE RISKS?
All investments involve risk, including possible loss of principal.
The value of investments and the income from them can go down as well as up and investors may not get back the amounts originally invested, and can be affected by changes in interest rates, in exchange rates, general market conditions, political, social and economic developments and other variable factors. Investment involves risks including but not limited to, possible delays in payments and loss of income or capital. Neither Franklin Templeton, Legg Mason, nor any of its affiliates guarantees any rate of return or the return of capital invested.
Stocks historically have outperformed other asset classes over the long term, but tend to fluctuate more dramatically over the short term. Special risks are associated with foreign investing, including currency fluctuations, economic instability and political developments. Investments in emerging markets involve heightened risks related to the same factors, in addition to those associated with these markets’ smaller size and lesser liquidity. Investments in fast-growing industries like the technology and health care sectors (which have historically been volatile) could result in increased price fluctuation, especially over the short term, due to the rapid pace of product change and development and changes in government regulation of companies emphasizing scientific or technological advancement or regulatory approval for new drugs and medical instruments. Small- and mid-capitalization companies can be particularly sensitive to changing economic conditions, and their prospects for growth are less certain than those of larger, more established companies. Commodities and currencies contain heightened risk that include market, political, regulatory, and natural conditions and may not be suitable for all investors. China may be subject to considerable degrees of economic, political and social instability. Investments in securities of Chinese issuers involve risks that are specific to China, including certain legal, regulatory, political and economic risks
Actively managed strategies could experience losses if the investment manager’s judgment about markets, interest rates or the attractiveness, relative values, liquidity or potential appreciation of particular investments made for a portfolio, proves to be incorrect. There can be no guarantee that an investment manager’s investment techniques or decisions will produce the desired results.