EMs look attractive

By Morningstar |  30-09-20 | 

Canada’s massive pension fund, The Canada Pension Plan Investment Board, or CPPIB, manages about 434.4 billion Canadian dollars. A bulk of its investments are in North America, followed by Asia.

The fund plans to invest up to a third of its assets in emerging markets, or EMs, over the next five years and India is an important destination.

Suyi Kim, CPPIB’s Asia Pacific head, informed CNBC: “Our investments in India span different asset classes including infrastructure, real estate, public and private equities, funds and co-investments and credit. We see domestic consumption, technology and increasing demand for infrastructure to support the growth underpinning many of the themes and opportunities we look at in India.”

In the light of zero interest rates in developed economies, EMs look more attractive.

Andrew Ness, the manager of Templeton Emerging Markets Investment Trust, or TEMIT, shared his view on EMs, with Morningstar’s UK editor, Holly Black.

Being the largest listed emerging markets investment trust in the U.K., he manages assets just over 2.2 billion sterling. It's also one of the oldest emerging market funds in the marketplace, having completed 30 years in July 2020.

Here is an extract from that conversation.

There are conversations how COVID-19 will change the world, but I think our expectation is that a lot will probably be less different than people expect. We still think many of the themes that we've been investing in for some time now, they'll remain very relevant in the post-Covid world and I think some of them will indeed be accelerated as a direct result of the pandemic.

Technology has been a big theme in TEMIT over recent years and it remains so today. It is very much enabling the reshaping of the global economy.

Our e-commerce investments in the likes of China, Korea, Russia and Taiwan, food delivery exposure in a wide range of markets, exposure to China's leading video streaming and music platforms – effectively they are equivalent of Netflix and Spotify, and also the country's equivalent of Zoom. And that's connecting friends, families and colleagues in very much the same way that we are connecting here today.

Elsewhere, we continue to have significant exposure to the EM consumer. I think that remains a multi-year growth opportunity for investors and there's two ways we can play that.

TEMIT has got exposure to both the under-penetration of a wide range of goods and services that can – credit cards in Peru to personal care products in India to give a couple of examples.

We've got the exposure to the upgrading or the premiumisation of consumption where EM consumers have emerged very much in countries like China, Korea, Russia and Brazil. And these consumers are keen to upgrade the quality of the goods and services that they consume as the wealth levels have risen.

What we are seeing in EMs over recent years is a significant improvement in corporate governance. We are seeing improved capital discipline, better reporting, a greater alignment with minority investors. And all of that ultimately leads, we think, to a potential re-rating of many markets, and we don't think that those trends are going to be negatively impacted by Covid, especially.

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