Getting Started in Emerging Markets

As investors, we tend to stick to the familiar, but if we ignore the potential of global markets, we miss out on opportunities

Our Interactive Quiz into Emerging Markets was designed to highlight the potential of these exciting markets. Global advancements in e-commerce, mobile banking, biotechnology, robotics and autonomous vehicles have opened a universe of opportunity that are not confined to developed markets.

As investors we tend to stick to the familiar. But if we ignore the potential of all global markets, we miss out on opportunities. Here are some reasons to consider including emerging markets as part of a diversified investment portfolio.

Growing middle class appetite

Both global and local brands are seizing the opportunities presented by the growing middle class in emerging market countries.

BMW now sell more cars in China through their joint venture with Brilliance China than they do in the US or Germany. Nigeria drinks more Guinness than Ireland. These are just two nuggets which illustrate increasing demand among populations whose income is rising. However, consumers’ appetite for choice and quality presents opportunities for companies which are often homegrown emerging market companies, too. This is not just a global brand game. In purely economic terms emerging markets are consuming more, demanding more, and making more than they have in the past.

In addition, emerging market firms are not just supplying their local consumer base, they are extending to other emerging markets and across the developed world – today most people have brands such as Samsung, Corona and Tata Motors.

Solid economic fundamentals

Good is subjective. Performance is relative. This is why the investment industry loves a benchmark. Global stock markets have done quite well over the last 3 years, producing returns of 10% annually. By contrast, the MSCI China Index produced a return of 15% annually over the last 3 years1.

What is more interesting is that the drivers of these returns are closely rooted in economic fundamentals. Breakthroughs in technology, advancements in e-commerce and huge infrastructural change across mainland China are all contributors to this level of growth, lifting millions of people into the middle class. These fundamentals are crucial for the longer-term outlook.

Short term market wobbles are often instigated by changing sentiment. Sentiment can weigh heavily on markets, with the good often being shaken with the bad. The flavour of the month can change, but companies with strong fundamentals are better equipped to add value for investors over the longer term.

Although China is the oft-cited as the example of the “middle-class boom” these themes are reflected throughout the emerging markets to various extents. Hence the terms “emerging” and “developing” – it’s an ongoing process of change and, ultimately, some of these markets may well end up classified as developed markets.

Nimble innovators

The impact of new technologies is continuously altering the realm of the possible. Making the most of these advancements requires a level of agility and willingness to change, something the traditional big global brands often struggle to achieve effectively due to their size and scale. However, the advancements in technology have been particularly pronounced in emerging markets. Unhampered by the rigidity of established process, emerging markets are proving to be drivers of change, able to effectively establish process through innovation.

This trend in innovation is evident in numerous emerging markets, such as the automotive industry in Indonesia, the uptake of mobile phone apps that are revolutionising the agricultural industry in Turkey, or how outpatient care for diabetes in India is increasingly managed through smart phones. These approaches have allowed this companies to effectively address demands that many larger brand competitors failed to recognise, and as such attained first mover advantage into new markets.

Of course, these potentially volatile markets do not necessarily offer a smooth ride but they have the potential to add diversification and growth to your existing investment portfolio.

Get started with franklin templeton emerging markets funds

Work with your financial advisor to fully capture the potential of the emerging markets investing. Together you can decide how best to incorporate these strategies into your portfolio.

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Important Information

This material is intended to be of general interest only and should not be construed as individual investment advice or a recommendation or solicitation to buy, sell or hold any security or to adopt any investment strategy. It does not constitute legal or tax advice.

All investments involve risks, including possible loss of principal.