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These markets will soon be hard to ignore so get in deep now

A group of men stand in front of an open-air uranium mine. One man holds a container filled with yellow cake (uranium powder)
A group of men stand in front of an open-air uranium mine. One man holds a container filled with yellow cake (uranium powder)

Dominic Bokor-Ingram is a senior portfolio manager at Fiera Capital

Investors who have put money into emerging markets are entitled to feel a little jaded. Their returns, assuming that they tracked the MSCI Emerging Markets index, have been negative (about minus 5pc) over the past three years while global stocks have rallied.

But anyone inclined to get out of emerging markets should think twice.

Some analysts expect the emerging markets to eclipse America by stock market valuation as soon as 2030, when they are predicted to account for 45pc of global economic activity.

The importance of high-growth economies to global supply chains will also make these investments harder to ignore.

So those who have previously interacted with emerging markets at arm’s length will need to put on long waders and get stuck in.

Countries such as Saudi Arabia, Mexico, Vietnam, Indonesia and the Philippines, which are all undergoing drastic political, economic and financial reform, offer abundant opportunity to investors who are willing to search the racks for high-quality stocks.

Identifying companies in emerging countries that meet that description means rolling up our sleeves. Great companies with strong governance and consistently good earnings growth are not easy to locate.

Recent changes in financial regulation in Europe have obscured what we know about emerging markets and made them more difficult to research. Mispriced companies with a competitive edge are also often immature.

There are standouts you would scarcely have heard of. Take Kazakhstan: famous for textiles, the Kazakh steppes and the Altai Mountains, but lesser known as the world’s largest uranium supplier. Scarcity drove a 45.1pc increase in the uranium price in 2023. Demand is fed by its importance to nuclear power, which now provides 10pc of the world’s electricity.

Vietnam is the second-largest coffee producer globally, but its role isn’t widely recognised. The part it plays in global technology isn’t either. Samsung and Apple have large manufacturing hubs in Ho Chi Minh City, and Vietnam houses the largest household appliance factory in south-east Asia.

The operation of the free market means that virtually everything we buy has – at one point – been manufactured, inspected or disassembled in an emerging market.

Active investors in emerging markets must look at every individual part of a supply chain, as well as the whole. Prized returns might be found in the seemingly mundane. Digital advertising in countries that are used to small-scale newspaper distribution; nickel for batteries that power smartphones; lithium for electric vehicles. Often what we take for granted as consumers is a competitive opportunity hidden in plain sight.

Investing passively in an index fund has the perverse effect of smoothing out strong growth prospects. And, in a new age in which fresh capital is needed to transition to new infrastructure, investors would be wise to take a more granular approach.

Savers who are licking their wounds after a glum few years for emerging markets as a whole may need to adopt a different outlook. Emerging markets are only projected to grow over time. So, too, must we.

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