Are you under-exposed to future economic growth?

In an increasingly interconnected and dynamic global economy, the path to prosperity lies in taking advantage of long-term growth opportunities.

As the world evolves, savvy investors understand the imperative of looking beyond borders and we believe that, more than ever, this involves embracing the potential of emerging markets.

Emerging markets comprise of 24 countries in Asia, Latin America, the Middle East and Europe. The largest include the likes of India, South Korea and China which are some of the fastest-growing economies in the world.

Combined, they currently generate 65% of global GDP growth and the International Monetary Fund (IMF) predicts this to climb even higher in the coming years, in stark comparison to the developed nations.*

And they offer a range of world-class companies and exciting investment opportunities. Particularly in sectors driving the electrification of transportation, renewable energy, and enablers of the fourth industrial revolution centred around artificial intelligence (AI) and new technology.

Household brands like Samsung, synonymous with cutting-edge electronics, or lesser-known giants like Taiwan Semiconductor Manufacturing Company (TSMC), the world’s largest advanced microchip producer, demonstrate the type of quality company listed in these markets.

The UN predicts the global population to expand by around 2 billion by 2050 with the majority of the increase in emerging markets.  This will continue to drive the increase in domestic consumption – a powerful dynamic.**

A burgeoning middle class presents a myriad of opportunities for investors keen on tapping into future growth. Indian bank, ICICI, is one example of a company benefitting from this trend and enjoying increased demand for bank accounts which are more accessible on new mobile phone-based technology.

Geopolitical tensions and the ‘China plus one’ strategy, means countries like South Korea, India, and Mexico are benefitting from developed market manufacturers seeking to de-risk their supply chains and build new factories around the world. With comprehensive free trade agreements and preferential access to key markets like the US, these nations look well positioned to capitalise.

Yet, despite the undeniable growth potential and innovation in emerging markets, many UK investors exhibit a natural "home bias" in their investment approach, favouring more familiar UK or US-based companies. While this may seem prudent, it could lead to missed opportunities and increase risk exposure. It’s not immediately apparent that the UK economy is highly concentrated in sectors like Oil & Gas and Financials and has little exposure to Technology companies. 

Have a think about your portfolio and if that bias rings true? Are you positioned to capitalise on the global growth trends, or is your regional focus too narrow?

This year, earnings growth (a measure of the rate at which a company's earnings are increasing or decreasing) is forecast to rise by 18% in emerging markets. That’s double the growth expected globally - and five times the projected growth for the UK. ***

Source: FactSet, MSCI. November 2023. Past performance is not a guide to a future performance.

Another important indication is valuation: are these companies cheap or expensive relative to their developed market peers? Given the high earnings projection above, it may surprise you to know that that emerging markets are around 47% cheaper on that measure. This follows some bumper years for US markets driven by the Tech giants in particular, which has stretched the gap. ****

If you are looking to invest in emerging markets, but are not sure how to, consider Templeton Emerging Markets Investment Trust (TEMIT). It’s a ready-made, core portfolio of around 80 quality companies diversified across countries and sectors.  These ‘best idea’ investments are handpicked by professional investment managers, who spearhead our team of more than 70 investment specialists based in 14 different emerging markets.

We believe the fact we are on the ground enhances our understanding of local companies and our ability to pick high-quality growth companies at sensible valuations.

TEMIT was the first-ever emerging market investment trust and has grown to over £1.9 billion in assets, thanks to a 35-year track record of delivering returns for shareholders.