|Emerging markets are expected to grow from 58% of global growth today, to 60% by 2025.
Major trends such as the revival in travel demand, the growth of digital platforms and the acceleration of mobile technology (now accessible by the majority of demographics) are responsible for spurring the prospects of these economies.
According to fund manager Capital Group, these are the key themes behind the opportunities in emerging markets in the next 10 years.
- Emerging market middle classes are driving growth in air travel.
- Pre-covid, it was estimated that 150 million people in Asia travelled for the first time each year.
- Fuelled by the rapidly rising middle-class population, over the next 20 years, the region is expected to account for around 50% of new air traffic.
- A revival in travel demand in Asia and other parts of the world will have a powerful ripple effect, creating the need for a range of goods and services and helping drive jobs growth across a variety of industries.
- Emerging markets underpin long-term growth in luxury goods.
- The evolution of a wealthy class in China and other Asian economies over the past three decades has provided the industry with an underpinning of sustained and structural growth.
- As the ranks of this consumer class, expand and newcomers are attracted by the social cachet and aspirational value of luxury items (driven by their consumption of social media), demand for these goods is expected to escalate in coming years.
- Emerging markets are driving the transformation to digital payments.
- The pandemic has expedited the trend from cash to electronic payments.
- The expanding middle class is rapidly adopting the internet, e-commerce and smartphones given a younger, more tech-savvy demographic; ease of use (versus cash) and greater access to financing; and changing regulations allowing unbundling from banks through fintech.
- Mobile technology trends are accelerating as internet usage rises.
- Emerging-market companies within e-commerce, gaming and social media have developed and localised their technology, accelerating their growth in ways that differ from their peers in developed markets.
- In many emerging economies, it is often women, the poorest and those living in rural areas that have the least access to such things as the ‘knowledge economy’, financial and medical services. As mobile technology and internet access becomes mainstream and increasingly cost-effective, this divide narrows.
- Innovation is a dominant force that will transform the health care industry in emerging markets.
- China is already the largest global supplier of active pharmaceutical ingredients and is steadily closing the gap between it and the US market.
- Telehealth is set to become a permanent fixture in the way health care is delivered going forward. Funding has been given to many companies offering online alternatives as a front door to a medical system or remote patient monitoring for things like blood glucose and blood pressure. This approach is greatly benefitting those living in remote and rural areas.
- The US-China rivalry
- Geopolitics and trade disputes (the biggest economic storylines of the pre-covid era)
- Opportunities exist for companies that won’t be hurt by a trade war. For example, companies and industries that are aligned with the Chinese Government’s policy priorities as well as having attractive long-term fundamentals.
- India’s equities
- India’s entrepreneurial culture and vast pool of technology talent has given rise to a host of domestic competitors, some with significant private equity funding.
- Key sectors to watch include e-commerce, banks and residential real estate.
- Banks, insurers and financial exchanges: The rising trio of the financial sector sets the stage for long-term economic progression in emerging markets
- Insurance companies, for instance, have reported significant growth in business segments serving China’s growing middle class and high-net-worth individuals.
- On the banking front – Amid the digitalisation of India’s economy, larger private banks are leveraging technology to make faster lending decisions and reach customers in rural areas through mobile apps. Many of these banks are now well-positioned to scoop up some of the country’s weaker lenders.
- In Asia, exchanges are at the centre of public financial markets that are expanding, providing a tailwind of secular growth. Russia has also experienced similar growth in recent times as retail investors flock to stock trading platforms in search of higher returns.
- The continued urbanisation in China and rising incomes
- In recent times, the equivalent of 1% of China’s population moved to the cities every year. That is 14 million people, and it is equivalent to two cities the size of London.
Whilst many argue that this rate of urbanisation is slowing and the housing boom in mainland China is largely over, construction remains the single greatest driver of Chinese growth.
We note in the wake of Evergrande that contingent to this construction will be the CCP’s efforts to balance the economy and wider contagion impacts.
- Let’s also not forget – existing homeowners also tend to upgrade their homes as their incomes rise. Emerging markets, such as Qatar, United Arab Emirates and of course China, have among the highest gross domestic savings rates in the world. High savings rates, coupled with low-interest rates, have been the key drivers propelling the global property market.
The full paper can be accessed here.