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In this issue of Trends Reinforced, the Emerging Markets Equity team reviews some truly innovative developments in emerging markets small-cap companies.
Jordan Pong Research Analyst, Franklin Templeton Emerging Markets Equity
Krzysztof Musialik Portfolio Manager, Franklin Templeton Emerging Markets Equity
Chetan Sehgal, CFADirector of Portfolio Management, Franklin Templeton Emerging Markets Equity
Global equity markets remain enamored with technology giants despite seismic disruptions from the coronavirus. So far this year, market valuations for some industry titans have soared, albeit with some recent volatility. The same holds for a select few of Asia’s e-commerce and tech giants.
Since COVID-19 has emerged, the pace of digitization has noticeably increased, with more consumers shifting consumption from brick-and-mortar shops to online. We continue to see emerging market firms cultivate innovative environments, particularly those with small market capitalizations (caps).
The global pandemic has now fast-tracked some emerging trends. We believe smaller companies are situated at the cusp of transformative investment themes with some strong tailwinds. Despite recently lagging businesses with a larger market cap, we think the current environment is fertile ground for small-cap opportunities, particularly in companies tightly aligned with macro trends.
We’ve observed two accelerating trends:
We see some truly innovative developments in emerging markets small-cap companies, some which we consider have greater long-term potential compared with larger peers. Smaller companies are generally primed to take advantage of changing trends and events as they tend to be more agile, which strengthens our investment case. While COVID-19 has reinforced our positive outlook for e-commerce giants, it has also accelerated some tailwinds supporting smaller companies.
Download the PDF to continue reading the article.
All investments involve risks, including possible loss of principal. Stock prices fluctuate, sometimes rapidly and dramatically, due to factors affecting individual companies, particular industries or sectors, or general market conditions. 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. To the extent a strategy focuses on particular countries, regions, industries, sectors or types of investment from time to time, it may be subject to greater risks of adverse developments in such areas of focus than a strategy that invests in a wider variety of countries, regions, industries, sectors or investments. The technology industry can be significantly affected by obsolescence of existing technology, short product cycles, falling prices and profits, competition from new market entrants as well as general economic conditions. Smaller and newer companies can be particularly sensitive to changing economic conditions. Their growth prospects are less certain than those of larger, more established companies, and they can be volatile.
The companies and case studies shown herein are used solely for illustrative purposes; any investment may or may not be currently held by any portfolio advised by Franklin Templeton. The opinions are intended solely to provide insight into how securities are analyzed. The information provided is not a recommendation or individual investment advice for any particular security, strategy, or investment product and is not an indication of the trading intent of any Franklin Templeton managed portfolio. Factual statements are taken from sources considered reliable, but have not been independently verified for completeness or accuracy. These opinions may not be relied upon as investment advice or as an offer for any particular security. Past performance does not guarantee future results.
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