EM - a growing set of opportunities

EMERGING MARKETS

Today’s low interest rate environment has left investors searching for higher returns. But in a fast-changing world, where should they begin to look? The answer could be emerging markets.

In brief

The emerging market region spans nearly 30 countries around the world¹, with many in a position to capitalise on broader trends such as digitalisation and rising income levels.
Southeast Asia (SEA) is currently home to an online population of 400 million people, a figure that is up 53% from 2015². With so many people becoming connected, SEA’s internet economy is expected to reach a gross merchandise value of $309B by 2025³.
Gender diversity has been a historical weak point for Brazilian companies, but female representation in the country has been improving. Brazil surpassed the emerging markets average for the first time in 2020⁴, thanks to increased awareness and initiatives by its financial sector.
As part of its National Health Protection Scheme, India’s government is looking to provide 500 million people with government-sponsored health insurance⁵. If progress is kept on track, revenues could increase at a compound annual growth rate of nearly 18%⁶, making it one of the world’s fastest growing healthcare markets in the world.

Sources: ¹MSCI, Jan 2020 ²Google, Temasek, Bain & Company, Nov 2020. ³Google, Temasek, Bain & Company, Nov 2020. ⁴MSCI, Nov 2020. ⁵National Health Profile, Dec 2018. ⁶IBEF, Aug 2020.

Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. The investor may not get back the amount originally invested.

Emerging market investments are usually associated with higher investment risk than developed market investments. Therefore, the value of these investments may be unpredictable and subject to greater variation. Note: All figures mentioned in this infographic are in USD.

Many emerging market countries are on equal footing with tech's biggest names. When compared to a single company, these countries may offer the opportunity for enhanced returns and diversification.

To get up to speed, here are three opportunities that investors may be overlooking

1 Digitalisation in Southeast Asia

Southeast Asia (SEA) is quickly emerging as the next digital giant.

Since 2015, the region has added 140 million internet users.

70% of the region's 583 million citizens are now online.

According to the latest projections, it could create an internet economy worth $300 billion by 2025. Southeast Asians are also some of the most engaged internet users in the world. The average internet user in the Philippines spends 10 hours a day online.

Source: Hootsuite, We are Social (Jan 2019) Google, Temasek, Bain & Company (Nov 2020) For illustrative purposes only.

SEA’s internet economy has more than tripled in size since 2015. Gross merchandise value (GMV) is the total value of merchandise sold through a customer-to-customer (C2C) exchange site.

Towards a technology driven powerhouse

Southeast Asia has many of the pieces it needs to become a technology driven powerhouse. If it maintains its current trajectory, the region could give birth to some of the world's next tech giants.

Young demographic

Average age 30.2 years old¹

Rising income levels

50 million new entrants to the global middle class by 2022²

Rapid adoption of technology

100 million new ecommerce users added since 2015³

Sources: ¹Worldometer (Jan 2021), ²Bain & Company (March 2019), ³Google, Temasek, Bain & Company (Nov 2020).

2 ESG improvements in Brazil

Gender diversity has been a historical weak point for Brazilian companies, but female representation has been improving. Brazil surpassed the emerging markets average for the first time in 2020.

For starters, companies with diverse leadership teams tend to be more innovative. Innovation revenue comes from products and services launched in the past three years.

Source: Boston Consulting Group (Nov 2018). Totals may not add up to a 100%. For illustrative purposes only.

Female leadership may help Brazilian companies gain a better understanding of this trend.

Diversity commitments in Brazil

2017

Brazil’s B3 stock exchange becomes the first country in the Americas to sign the Women’s Empowerment Principles, an initiative of UN Women.

2019

The 30% Club launches in Brazil, aiming to promote awareness around diversity and eliminate all-male boards by 2021.

Present

Brazil’s government is discussing a bill which would introduce a gender quota of 40% women on corporate boards.

3 Infrastructure expansion in India

Source: National Health Profile (Dec 2018) For illustrative purposes only.

Structural scaling up of healthcare. India is working to overcome its historic lag in public health spending

To address this shortfall, India is making investments to provide 500 million people with government-sponsored health insurance.

This scale-up could potentially result in one of the fastest growing healthcare markets in the world.

Revenues are expected to grow at a compound annual growth rate of 17.7% as millions of Indians gain access to better services.

Source: IBEF (Aug 2020) For illustrative purposes only.

Since 2000, India has allowed 100% foreign direct investment in healthcare projects such as hospitals.

Source: Google, Temasek, Bain & Company (Nov 2020) For illustrative purposes only.

With 10 million people migrating to its cities each year, real estate development is another top priority for India. Supply shortages across all three income groups are an opportunity for both domestic and foreign developers.