Andrew Ness, Portfolio Manager at Templeton Emerging Markets Investment Trust
Despite the undeniable growth potential and innovation in emerging markets, many UK investors exhibit a natural “home bias” in their investment approach, favouring more familiar UK or US-based companies. While this may seem prudent, it could lead to missed opportunities and increase risk exposure. It’s not immediately apparent that the UK economy is highly concentrated in sectors such as oil and gas and financials, and has little exposure to tech firms.
Emerging markets, which include the likes of India, South Korea and China – some of the fastest-growing economies in the world – currently generate 65% of global GDP growth and offer a range of world-class companies and exciting investment opportunities. Particularly in sectors driving the electrification of transportation, renewable energy, and enablers of the fourth industrial revolution centred around artificial intelligence and new tech. Household brands such as Samsung, synonymous with cutting-edge electronics, lesser-known giants like the Taiwan Semiconductor Manufacturing Company, the world’s largest advanced microchip producer, demonstrate the type of quality company listed in these markets.
This year, earnings growth is forecast to rise by 18% in emerging markets – double the growth expected globally and five times the projected growth for the UK. Another important indication is valuation: are these companies cheap or expensive relative to their developed market peers? Given the high earnings projection above, it may surprise you to know that emerging markets are around 47% cheaper on that measure. This follows some bumper years for US markets driven by the Tech giants in particular, which has stretched the gap.
If we look at the potential gains that could have been made through emerging market investing over the years, the evidence is compelling. For instance, if an initial one-off lump sum investment of £10,000 was made at TEMIT’s inception in June 1989, it would have been worth around £446,960 by the end of 2023. This is 239% greater than if the same investment had been made in the FTSE100 (approximately £131,839).