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Finding Opportunity in Emerging Markets
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Emerging Markets Evolution and What It Means for Investors
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Big Ideas Driving Innovation in Emerging Markets
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Benchmarks Don’t Reflect New Emerging Markets Reality

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Emerging markets have undergone a remarkable transformation over the past 10 years, moving from an emphasis on highly cyclical sectors such as commodities, banking and basic manufacturing to higher profit, higher growth sectors such as healthcare, consumer discretionary and information technology.

One of the forces behind this evolution is a new generation of talented entrepreneurs who are leveraging an increasingly educated workforce to drive innovation and unleash the potential still to be found in emerging markets. These entrepreneurs are creating unique, differentiated business models in high profit sectors of the market. In my opinion, this has the potential to create long-term growth opportunities for investors.

Sector-Specific Thematic Opportunities

Healthcare is one of the areas seeing rapid growth. South Korea and India, for example, have several pharmaceutical companies that are making life-saving treatments available to their local markets for an affordable price. This gives more people in countries like China and India a better chance of surviving illnesses. These companies are also helping to lower the price of medications in the developed world.

Within technology, the Internet of Things has enabled us to enjoy having a connected house or paying for items using our phone, but it also has the potential to expose our data to hackers. We’re investing in innovative data security companies in Taiwan that we believe may help make the Internet of Things more valuable by making it safer.

In the consumer space, we’re looking at K-12 education. Mothers see a quality education as a pathway to a better future for their children. What’s interesting about K-12 education as an investment is that, when the economy slows, women are much less likely to cut education spending. This theme enables us to get in line with what mothers in these emerging markets want for their kids while also supporting entrepreneurs who are providing these services.

Thinking About Benchmarks

One issue we have with emerging markets is that the standard benchmarks may not optimally reflect the composition of the market today. Because they are market-capitalization weighted, these indices tend to skew heavily toward commodities and financials. These sectors can be volatile and are more reflective of where emerging markets were than of where we believe they are headed. As a result, a passive approach to emerging market equity investing may miss out on what we see as important growth opportunities.

Strategy Information Emerging Markets Innovators View Strategy Detail

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