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ESG Investing: Finding Your Motivation

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ESG Investing: Finding Your Motivation


BlackRock Emerging Markets

With growth portfolios becoming increasingly focused on China, investors may develop a tendency to overlook the broader emerging markets universe.

To shed a light on some lesser-known opportunities, this infographic from BlackRock explores the evolving landscapes of Southeast Asia, Brazil, and India.

Putting Opportunity Into Perspective

Emerging markets often exhibit lower price/earnings ratios (P/E) when compared to developed markets. While this may suggest that the region is attractively priced, investors can also view emerging markets from a relative size perspective.

Here’s how the market capitalisations of several emerging markets compare to some of the biggest names in tech.

Country Total Country Market Cap (USD) Comparable to Company Market Cap (USD)
India $2,111B Apple $1,981B
Brazil $711B Facebook $746B
Thailand $428B Tesla $401B
Indonesia $381B Nvidia $334B
Philippines $270B Netflix $221B

As of September 2020. Source: CEIC, Ycharts

Investors often focus on tech companies when seeking long-term growth, but with valuations at their highest levels since the dot-com bubble, uncertainty could begin to rise.

That’s where emerging markets can come into play. A country such as Brazil, which contains over 400 listed companies, may offer enhanced returns and diversification when compared to a single company. To learn more, here’s a closer look at three emerging markets opportunities that might be flying under your radar.

1. Southeast Asia: A Rising Digital Economy

Southeast Asia (SEA), which includes Indonesia, Malaysia, Philippines, Singapore, Thailand and Vietnam, is quickly emerging as the next digital giant. The region is currently home to an online population of 400 million people, a 53% increase from 2015.

With so many people going online, companies such as Grab, a local ride-share provider, have accumulated millions of new users. This spells good news for investors, with SEA’s internet economy expected to reach a gross merchandise value (GMV) of $309B by 2025.

Year SEA Internet Economy GMV* (USD)
2015 $32B
2019 $100B
2020 projected $105B
2025 projected $309B

*GMV is the total value of merchandise sold through a customer-to-customer exchange site.
Source: Google, Temasek, Bain & Company

Favourable demographics are also contributing to this growth. The region is expecting 50 million entrants to its middle class by 2022 and has an average age of just 30.2 years. That’s roughly 10 years younger than the UK, and 18 years younger than Japan.

Furthermore, this growing cohort of wealthier consumers is already embracing technology. Ecommerce, a subsector of SEA’s internet economy, has added 100 million new users over the past 5 years, with GMV increasing from $5 billion in 2015 to $62 billion in 2020.

2. Brazil: Improvements in Gender Diversity

Gender diversity has been a historical weak point for Brazilian companies, but female representation in the country has been improving. Here’s how the percentage of women on corporate boards differs between Brazil, emerging markets, and developed markets.

Year Brazil (n=53) MSCI Emerging Markets Index (n=1,323) MSCI World Index (n=1,584)
2016 5.8% 9.0% 20.3%
2017 8.4% 10.2% 20.4%
2018 8.0% 11.2% 21.6%
2019 11.9% 12.1% 25.0%
2020 13.7% 13.0% 26.2%

Source: MSCI

Brazil surpassed the emerging markets average in 2020 thanks to increased awareness and initiatives by its financial sector. Brazil’s B3 exchange, for example, was the first stock exchange in the Americas to sign the Women’s Empowerment Principles, an initiative by UN Women.

Greater female representation is welcome news for both investors and society alike. Research from the Boston Consulting Group found that companies with above-average diversity tended to be more innovative, generating a greater share of revenue from recently launched products.

3. India: Promising Opportunities in Healthcare and Real Estate

As part of its National Health Protection Scheme, India’s government is looking to provide 500 million people with government-sponsored health insurance. If progress is kept on track, health sector revenues could increase at a compound annual growth rate (CAGR) of 18%, making it one of the world’s fastest growing markets in the world.

Year Revenue from India’s Healthcare Sector (USD)
2016 $140B
2017 $160B
2020 Projected $280B
2022 Projected $372B

Source: IBEF

Achieving this goal will require participation from both the public and private sectors. For example, India’s government has pledged to increase public health spending from 1.1% of GDP in 2018, to 2.5% by 2025. Additionally, it allows 100% foreign direct investment (FDI) in projects such as hospitals.

India is adopting a similar strategy for real estate, which has struggled to keep up with growing demand. In India’s top eight cities, the housing deficit amounts to over 3 million units.

 
Indian Real Estate
Income Group Demand Supply Deficit
Lower income 1,982,000 25,000 1,957,000
Middle income 1,457,000 647,000 810,000
High income 717,000 351,000 366,000
Total 4,156,000 1,023,000 3,133,000

Source: IBEF

To accelerate development, India’s government has allowed 100% FDI in residential and retail developments since 2018. Analysts believe that the country’s real estate market could become the third largest in the world by 2030.

There’s More Than Meets The Eye

Over the span of a few years, China has grown to comprise nearly 40% of the MSCI Emerging Markets Index—but this doesn’t mean that China should receive all of the attention from investors.

With almost 30 countries to explore, China and the opportunities discussed above are just a subset of what emerging markets have to offer. For growth-minded investors, giving this diverse region a closer look could be rewarding.

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