3 Themes In Emerging Markets
We believe it can be dangerous to be overly reliant on thematics when positioning portfolios. Yet as growth investors, we are always looking for companies that are tied to supportive long-term structural drivers.
Identifying these drivers is an important step toward pinpointing the undervalued companies with superior quality and growth characteristics – and we see a number of these investable themes today in emerging markets.
Theme 1: Technology
One investable theme in emerging markets is technology. E-commerce, 5G telecom, online education, distributed computing, and telemedicine have long outperformed more traditional, “old economy” industries, regardless of valuation differentials favoring the latter.
In our view, the competitive positions of companies in these sectors are strengthening amid the downturn as pandemic-related stay-at-home measures have accelerated the move to a digital society. What had been a gradual 20-year shift to online life quickly gained speed, with healthcare, shopping, education, and work going digital almost overnight.
We believe technology will likely lead the way out of this downturn.
We find many of these technology-related opportunities in Asia, including China.
The Chinese government’s efforts to accelerate the cloud and 5G domestically are contributing to this as the government rolls out stimulus measures with a dual purpose: to stimulate the economy and make China hyper-competitive from a 5G perspective. A desire in China to have more local technology software and hardware suppliers is also supportive of this trend, as is a growing and broader set of technology customers within China.
At the same time that we are embracing technology, we are being diligent in reassessing cyclically-oriented companies within our quality growth universe that have been heavily penalized this year. These include travel-related companies as well as selected financials. We have cut financials back in our portfolios, as they face the headwinds of record low interest rates and