Many of you will have seen today’s spread in the Financial Times (“FT”) entitled “Does investing in emerging markets still make sense?”. The recent high-level departures in Mexico and Turkey seem to epitomise the conclusion that investors might be better off elsewhere.
The FT states that the economic growth of the last 20 years has lifted hundreds of millions “out of poverty into the consumer classes”. However, the gloomy tenor of the article, that GEMs convergence with developed world prosperity “is no longer assured”, misses the point. We have no doubt that the incredible growth in China is slowing and that further recessions like the one in Brazil in 2015-2016 will recur but then slowing growth and recessions are not unknown in the developed world. More fundamentally, it is wrong to conclude that slower growth/recessions in GEMs will cast those same millions back into the abject state from which they came.
Of course, nothing in this world is “assured” but urbanisation and all its attendant benefits (better infrastructure, healthcare and education) are here to stay in many of the economies in which we invest. Five years ago the FT cast doubt on the fate of so called “Ghost Cities” in China. These are now thriving places with good infrastructure and settled populations which are not about to regress into rural poverty. Similarly, the Aadhaar system in India has brought millions into the formal economy reducing corruption and opening up the possibility of ecommerce and other benefits. It is difficult to imagine how the electrification that has put cold Pepsi in 90% of Indian villages will be reversed by periodic economic slowdowns.
We do not believe that trade friction is going to have the impact it once would have done. These economies are now less dependent on the shipment of cheap manufactured products and more driven by domestic demand. As a result, our focus remains on the consumer and nothing else. Our research shows he/she is alive and well. Of course, you need to be selective with the countries you chose and canny with the stocks you pick, but the returns are there to be had even when the indices are pedestrian.
But don’t take our word for it. Go and see it for yourself!!
The Aubrey Global Emerging Market Strategy has returned +108.5% since inception (March 2012) to June 2019, while the MSCI Emerging Markets Index is up +18.4% for the same period.*
*Source: Aubrey Capital Management Ltd, Bloomberg. Past performance is no guarantee of future results. Source for all data: Bloomberg, RBC and Aubrey Capital Management. Aubrey Capital Management is authorised and regulated in the UK by the Financial Conduct Authority and is registered as an Investment Adviser with the US Securities & Exchange Commission.
This article has been issued by Aubrey Capital Management Limited Ltd (“Aubrey”), 10 Coates Crescent, Edinburgh, EH3 7AL (+44 131 226 2083). Aubrey is incorporated in Scotland, registered number: SC299239.
Aubrey is an investment manager authorised and regulated in the UK by the Financial Conduct Authority (Reg. No. 455895) and is registered as an Investment Adviser with the US Securities & Exchange Commission.
You should be aware that the regulatory regime applicable in the UK may well be different in your home jurisdiction.
This article and its contents have been prepared solely for the intended recipient for information purposes and is not a solicitation, or an offer to buy or sell any security. The information on which this is based has been obtained from sources that we believe to be reliable, and in good faith, but we have not independently verified such information and no representation or warranty, express or implied, is made as to their accuracy. All expressions of opinion are subject to change without notice. Any comments expressed should not be taken as a recommendation or advice.
Please note that the prices of shares and the income from them can fall as well as rise and you may not get back the amount originally invested. This can be as a result of market movements and also of variations in the exchange rates between currencies. Past performance is not a guide to future returns and may not be repeated.
Aubrey Capital Management Limited accepts no liability or responsibility whatsoever for any consequential loss of any kind arising out of the use of this article or any part of its contents. This does not in any way constitute investment advice or an offer or invitation to deal in securities. Recipients should always seek the advice of a qualified investment professional before making any investment decisions.”