Emerging Markets Equity Outlook

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Structural Changes Are Creating EM Opportunities

COVID-19 has produced long-term structural changes affecting many aspects of life in emerging markets. The pandemic has accelerated existing trends, including the migration to online and adoption of digital platforms. This shift is most visible in e-commerce, which continues to grow rapidly across China, India and throughout Asia. We’re also seeing increased market penetration in certain categories, such as grocery shopping and food delivery. Businesses have reoriented their operations and upgraded digital capabilities to accommodate consumers’ move to online platforms.

The pandemic has also brought about changes to consumer behavior beyond e-commerce that may prove to be permanent. Consumer preferences in work, education, health care, entertainment and transportation have transformed. Working remotely, people are demanding better hardware, software and online access. This development benefits information technology services providers, cloud-based companies, data center operators and 5G network firms. The move to remote learning has been swift, and we expect this move to continue to support the structural shift from in-person to online education. The increased demand for health care and inadequate number of EM medical facilities to deliver services have hastened the adoption of telemedicine. The desire for a healthier lifestyle has fueled demand for athletic equipment and apparel, which is driving growth for athleisure wear makers. The shelter-in-place environment has resulted in a spike in online gaming as well as consumption of streaming music and video. This boom is benefiting online advertisers, streaming content providers and online gaming companies. Finally, bicycle and e-bike makers are experiencing significant backlogs as people steer clear of public transportation to avoid potential exposure to the virus. 

COVID-19’s impact on e-commerce has profoundly changed consumer behavior well beyond online shopping. Long-term structural changes are creating opportunities for companies that can successfully address consumers’ rapidly shifting preferences for the ways they engage with businesses.


Continue to Think Long Term Until the General Election Provides Answers

Rhetoric is escalating between the U.S. and China as we near the election. Accusations, threats and counterthreats continue to fly between the leaders of the world’s two largest economies. We are watching this situation closely. President Trump’s recent threats to major Chinese technology companies (e.g., Huawei, TikTok, Tencent’s WeChat) could have serious effects on these companies and their U.S. suppliers and customers. The threats could also have significant repercussions if China retaliates against U.S. companies exposed to the Chinese market.

As we’ve noted in the past, we are unsure how much of the current U.S. administration’s rhetoric is campaign bluster, negotiating tactics or actual policy intentions. We are aware, however, that in a second term, President Trump would likely be less concerned about the short-term effects of his trade negotiations on U.S. business and the domestic stock market. It’s hard to predict how a Biden presidency would differ, but the former vice president is on record as planning to be tough with China on intellectual property rights, trade imbalances and forced technology transfer. The bottom line is that uncertainty around U.S.-China relations will continue to unsettle emerging markets for some time. Until these two nations resolve their disputes, we’ll continue to focus on the company-specific merits of individual stocks that we believe can outperform despite an uncertain macroeconomic environment.

The U.S. elections compound U.S.-China relations and cloud the outlook for global trade. This uncertainty will likely weigh on emerging markets until after the elections when we should get some clarity about trade negotiations.



Q4 2020 Investment Outlook Resources

References to specific securities are for illustrative purposes only, and are not intended as recommendations to purchase or sell securities. Opinions and estimates offered constitute our judgment and, along with other portfolio data, are subject to change without notice.

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